Our mind can play funny tricks on us, and weird things can happen that we don’t always understand we are falling trap too. We fall into a false sense of security which can mean making less than ideal decisions… and having too high of a bank balance can be one trap that causes you to spend beyond your means!
Hear me out, if you log into your bank account and see a balance of a few hundred dollars you might start to panic a little bit. Alternatively, if you log in and see $15,000 you’ll think you’re doing fine (maybe even great) financially. Why this becomes tricky is because even if we have $15,000 sitting in our chequings account some (or all) of that money might be spoken for. In addition, you are no better off (in fact I’d argue that you are worse off) than a person with $500 in their chequings account and $14,500 invested.
Believing you have more money than you really do shifts our mindset to one of spending. It squashes the scarcity and allows us to justify spending money frivolously. I don’t know about you but when I log in and see a low bank balance I start to add up all the bills that are coming due before the next time I get paid. This allows me to feel at peace; ensuring that I have enough to cover my costs.
While I don’t think you should try and induce stress upon yourself, I think each and every one of us should set guidelines for a maximum bank balance in our chequings account. Once we’ve hit that threshold excess cash should be moved to a savings or investment accounts. This seems simple and quite frankly I’m sure some of you are thinking that this is just an exercise in tricking your mind. And, if I’m being honest, it is exactly that. Your brain can easily be tricked into believing something that isn’t necessarily true. Shifting the expectation to living on less because you only have a set amount of cash in your bank account means that you will function in more of a frugal mind set. Being in that type fo a mindset means that you will spend less, you might skip the extra Sephora purchase, and you’ll have more money on a monthly basis.
How much should you keep in your chequings account?
There is no hard and fast number where once crossed everyone starts spending out of control, I like to keep between $500 to $1,000 in my chequings account at all times. Anything above that I move to investments or a savings account. This also includes savings account I’m using to save up for bigger purchases! However, depending on the type of person you are, and how often you are paid $1,000 may or may not be appropriate. Taking into account circumstance is always important when it comes to personal finance. I’d encourage you to be mindful when it comes to your bank balance and check in a couple times a week, and see what number you need to cross to start feeling spendy. Then I’d challenge you to keep your bank balance below that number! You’d be surprised with how quickly you subconsciously slash your spending!!
Keeping a balance of under $1,000 can seem like a stressful task, because of the cash flow restrictions, it might be worth a try. I bet you’ll find that you spend less and spend on more items that really truly add value into your life.