Having float in your bank account can ensure that you never have to think about—or worry about—when your bills are going to be paid.
I almost had a financial scare recently.
I realized that one of my incoming payments was going to be delayed by about a week, which was the same week that a lot of my bills were set to be auto-paid.
Eventually, I would get paid, but in the meantime, I was about to have thousands of dollars in bills come out of my checking account. And I realized this a few days after it happened. Uh oh.
Luckily, I had planned for this very moment. Okay, I had barely planned for it, so I still broke a sweat, but I had planned for it.
And this is relevant for you if you spend time worrying about when certain bills can be paid in the month.
It’s time to set up a system so you never have to do that again.
Table of Contents
Stop thinking about money so much
A lot of financial success isn’t about what it allows you to do, but what it allows you not to do.
Instead of worrying whether you can afford to do something, you know you can, so you act accordingly (or you know you can’t, and that’s fine too). And instead of being afraid of what the future holds, you’re confident, because you’ve planned for all contingencies.
Sometimes it’s the big things that matter of course, like having money for retirement, but I like to focus on the small ways that you can have money take up less space in your brain. For most people, that’s a good thing.
And one of the best ways to remove money from your brain is by not having to worry about when bills are paid.
When the bills can’t be paid
It’s a common situation: you have bills that need to be paid, but you have to time them just right, so that you have the money to pay for them.
When you are in this situation, you end up spending a lot of time managing your finances. You have to keep tabs on your bank account balance, your paycheck schedule, and whatever else you spend money on. If you don’t, you run the risk of overdrafting your account, which would lead to bigger problems.
All of this takes effort, and is probably a little stressful.
Sound like you?
Float away your cares
There is a solution to this problem. And it’s a solution I call “float“.
Float is money that you leave in your bank account so that the ebbs and flows of your money throughout the month are covered without you needing to worry about running out of money. It pads out your account, so you can dip into it as necessary.
Here’s an example. Let’s say you get paid $2,000 twice a month, on the 1st and the 15th. That’s $4,000, but even if you spend all of that $4,000, you couldn’t spend all of it on the first day of the month. You’d only have half.
But, let’s say if you added $2,000 of float to your account, then you could spend $4,000 on the first day of the month, or at any time throughout the month. As long as you didn’t spend more than $4,000, you’d never need to worry about running out of money.
If you put enough money into your checking account, you’ll never need to worry about when your bills get paid every again.
If you want to be absolutely covered, put as much float in your account as you spend in a given month. That may seem like a lot, but you only have to put it in once. Then it just stays there, sloshing around.
How to find your float
Sounds great, but where are you going to get this money from?
Well, it might be right in front of you. If you have any savings that’s just sitting there, transfer it into your checking account, and then you’re done.
I wouldn’t recommend taking money out from a retirement account, but that is technically an option.
If you don’t have the money, then you’re going to need to save it. But this can potentially happen fast. Even $200 a month would get you $2,000 in less than a year.
Stop looking at your account balance
The mental trick you need to start doing that will make this work is that you need to stop looking at your account balance as the money you “have”, because you don’t “have” all of it when you have float.
Here’s what I mean. Let’s say you have $500 in float in your account, a very respectable amount. This means that you have $500 at the beginning of the month, before any money has been spent or received. And at the end of the month, you should have $500, otherwise you’ve spent your float away, which defeats the purpose.
So you can’t look at your account balance, because you’re not spending down to zero. Instead, you need to keep track of how much money you’ve spent. If you make $4,000, you can’t spend any more than $4,000 in a given month. Your account balance won’t tell you this.
But this is actually a good thing, because I think you should be tracking your spending anyway.
Spend less time thinking about money
The goal here is to spend less time thinking about (and worrying about) money. And when you have enough float in your account, you’ll never worry about running out of money. You can auto-schedule your bills to be paid whenever you want them to, and then you can forget about them.
And that’s what happened to me. I typically have a few thousand dollars in float in my account, which is maybe about 80% of my monthly spend. And boy oh boy, I’m glad I had it, because of the way my bills got automatically paid, I was down to only a few hundred dollars before everything was righted about a week into the month.
Had I not had float, I would have overdrafted, which would have been disruptive, expensive, and embarrassing. But this way, even being a few thousand dollars off I was still fine.
How nice does that sound? I thought so. Happily, you can do this too.
