143 | The Checking Account Buffer

Waiting for your next paycheck to hit or feeling like you’re living on the edge financially doesn’t have to be the norm. One of the strategies I teach all of my clients—the checking account buffer—puts an end to all of that.

In this episode, let’s talk about what the checking account buffer is, how much should be in it, and some common reasons that prevent lawyers from creating one.

• the experience many lawyers have with their finances near the end of the pay period
• what a checking account buffer is
• how much to have as your checking account buffer
• the “I work hard; I deserve it” mentality
• the extremes of restricting everything or spending everything and the balance in the middle
• smoothing the rollercoaster happening in your bank account
• the belief that debt is bad
• why it’s sometimes irresponsible to pay your debt off quickly
• having too much money going out for fixed expenses
• why the idea that everything will work out fine can be dangerous
• practicing strategic pessimism with your finances
• a recent personal experience of things not going as planned with my finances

Episode 135: Buckets of Money

If you’re ready to learn the mindset and strategies to master your money, let’s schedule a call.

You’re listening to Wealthyesque. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. Today we are talking about a strategy that I teach all of my clients called the checking account buffer. So many lawyers get to a point in the month where they’re waiting for their next check to hit. Maybe you’re familiar with that point where you’re just feeling on edge because things are tight with your money and you don’t know if a charge forgot about is going to come through and make your account go into the negative and you run out of money or you get very close to running out of money, such as your account dropping down to $100 or lower. This is such a common occurrence for people. So if this is you, you are not alone. This strategy that I’m gonna teach you about the checking account buffer is the remedy for that. It acts as a safeguard between you and your bank account dipping too low or getting into the negative and the overdraft fees and the stress that often come along with those things. So what is a checking account buffer? Your checking account buffer is an amount of money that sits in your account. It acts as a buffer between you and your account hitting zero and everything that comes along with it. So this is your new zero. Your Account never dipped below this number and if it does, you build it back up when you have this money sitting in your account. It helps you to avoid overdraft in your account running out of money before the next pay period, getting overdraft fees, putting extra expenses on your credit card pulling from savings to cover expenses, all that kind of stuff. So you’re going to have some money that just sits in your account now. How much should that be? Just like any other thing in personal finance, there isn’t a should. It depends, right? It’s personal to you. I teach my clients to have at least $1,000 That’s how much my husband I started with. And then we actually built it up to a few $1,000 When the pandemic hit for a little more cushion because the firm I was working at did pay cuts we started furloughing people and we just kept it at that level ever since some of my clients even do up to a full paycheck. There’s no right answer here or no one size fits all amount. It really depends on you and what you want to do. What I will say though, is don’t go overboard with it. I wouldn’t have 10s of 1000s of dollars sitting in your account as a buffer, right? There are other things that you can do with that money that will be more useful for you and your financial goals. So if I had to give you an amount or a range, I would say around one to 5000 is sufficient. Alright, so now let’s talk about some of the common reasons I see that lawyers overspend that will prevent you from building a checking account buffer. And this is by no means an exhaustive list. It’s just a few reasons that I see come up most often. The first one is this mentality of I work hard, I deserve it. And I get it. You put in a lot of hours at work. Many of you are accounting for your time in six minute increments. You’re dealing with difficult partners or bosses or clients. So naturally you want to be able to treat yourself sometimes. And listen I am all for treating yourself. As I say all the time. I don’t believe in cutting everything and restricting yourself and not doing any of the things that you want to do in the name of being responsible or being better with your money. I don’t think that works long term. And it doesn’t make sense. Because what’s gonna happen is you’ve got all the things and the over restrict, and then you get tired of it and you go overboard course correcting because you felt restricted for so long, and you just don’t wanna do it anymore. And so you’re like, yes, while I was making rain, right? As we’ve talked about before, you want to be in the middle. We’re not going all the way to restrict everything or all the way to spend all the money make it rain. What I recommend is a balanced approach. So you are intentionally deciding how you’re gonna use your money looking at what’s important to you, including the goals that you want to achieve with your money you’re making sure that you use your money for the things you need and to achieve the goals you have, but that you also spend on things that are important to you. When you don’t take that intentional approach and you just spend because you deserve it and the money is there and you’re like oh look money fun, right? Then you end up in situations where you’re living on the edge and maybe going into the negative in your account. We’re getting dangerously close and that’s not fun. What you deserve is to not feel anxious around your finances and to not be waiting for your next paycheck because you do work hard and you make that money. So let’s make sure you have something to show for it. Let’s smooth out this roller coaster that’s happening in your account where you’ve got really high balances when you get paid and then really low balances as you near the end of the pay period. getting a handle on that mindset and being more intentional with how you use your money is the key here. When you’re more intentional. You don’t spend everything that’s coming in which allows you to create a buffer in your account. And as we talked about the buffer is going to be your new zero so your account is never getting close to zero or going negative again. And another common reason that comes up is the belief that debt is bad. When I’ve seen this one the money will come into the account and then people will immediately pay it out to pay something off. Or to pay down debt like a credit card or a car loan or something like that. But what often happens is then you end up not having enough money to pay for the other things you need to pay for and that puts you and your family at risk. When you’re so focused on paying things down as quickly as you can without thinking about the other things you have to pay for. You’re essentially prioritizing those companies who hold your debt over yourself and your financial stability. I think there’s a thought about being responsible underlying this, like this is the responsible thing to do to pay this debt off quickly. But when you’re paying so much that is at the expense of your own financial security that is not responsible. You definitely don’t want to ignore your debt but you don’t have to pay so much on each month that you don’t have money for the other things you and your family need, including building a buffer in your checking account. Another one that comes up is if you have too much going out and fixed expenses, things like your rent your mortgage your car payment debt payments. That kind of stuff. We talked about this in the buckets of money episode. But basically, if you’re required spending for the month, the minimum payments on your bills and other debts is more than half of your income. It’s going to be really hard to get ahead with your finances and it’s definitely going to be hard to build a buffer so you want to get those payments down since you can free up more of your money to achieve your goals. The final thing I want to talk about is the idea that everything will always work out or everything will be fine. That mindset leads to a lackadaisical approach to your finances in general. You just assume everything will work out so you don’t plan for if they don’t. My coach teaches the concept of strategic pessimism which is planning for worst case scenarios. Yes, it would be great if everything always worked out the way you want it. But if it doesn’t, how are you gonna handle that? When you approach your money from that everything will work out fine perspective. You don’t prepare for things not working out fine. You don’t leave any margin for error. Things don’t just work out we’re not you work them out. You are in charge of your finances and making sure that things work out. So rather than just assuming that it will all work out. You plan for things that could go wrong. You plan for undesired situations coming up in your personal finances. Part of that plan is putting this buffer in place so that when things do go wrong or they do go unplanned as they sometimes do, you have some cushion in your finances. Case in point my husband and I overspent last month and I’m not talking about a little bit of overspending. We spent almost $2,000 more than we brought in last one due to a few big unplanned expenses. But because we have a checking account buffer, the unplanned expenses didn’t cause us any sort of financial issues. We didn’t need to dip into savings or carry a balance on our credit card or account didn’t dip into the negative, none of that we had the money in our account and we’re able to cover those unplanned expenses. And now we’ll build that buffer back up. So I want you to approach your finances with strategic pessimism. Let’s not assume that everything will work out. Let’s plan for it if it doesn’t, which includes having measures in place to provide cushion for when things go wrong, like your checking account buffer. Planning ahead for things that can go wrong is just good financial sense. All right. So that is the concept of the checking account. Buffer is an amazing tool for your personal finance repertoire. And it’s one of the strategies that I teach all my clients. It’s one of the reasons why they don’t have the anxiety and the stress and the fear that is so common for attorneys around the personal finances, especially as we get toward the end of a period. This strategy coupled with others I teach helps my clients transform their experience of their money. And listen if your experience of your finances sucks, let me help you implement strategies like this one to turn that around. Just head to rho thomas.com/call And let’s talk about how you be one of my clients all right, that is it for this week’s episode. Come connect with me over on social media. You can find me on LinkedIn rho Thomas and Instagram I am rho Thomas. Subscribe to the show and leave a rating and review if you haven’t already. Those ratings really helped the show and attract more listeners. And finally, please think of a friend or two who could use this information would find it useful and share this episode with them. As we close out friend, I pray that you take the information you learn here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently. Week after week. You’ll continue to take steps to regain control of your time build wealth and live a life of freedom and choice you deserve. Talk to you later.