Ever feel like the paycheck disappears the moment it hits your checking account? In a recent Marketwatch survey, 57% of Americans say they’re living paycheck to paycheck.
One unexpected expense can quickly put a dent in any bank account. But a simple, money-saving strategy can help build financial security. It’s called a cash cushion.
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WATCH HEREStephen Kates is a financial analyst at Bankrate. “This just gives you a way to try to stay ahead of what you know is going to be bills down the line without having to worry about every paycheck having to be covered.”
Unlike an emergency fund, a cash cushion helps cover everyday surprises. It means keeping a smaller amount of money – around $100 to $200 – that stays untouched in a checking account at all times. Think of it as always driving with a full tank of gas.
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SIGN UP “You got a little bit of a safety net,” Kates said. “You've got money that you can access when you need it, if you need.”
This built-in buffer can be used to protect against overdraft fees, unexpected charges or timing issues with recurring payments. And not only that, but it can help improve financial peace of mind.
“You're worrying about when your paycheck hits, when the bills are due, and are those gonna cover? Are you gonna be in a position where you're short or you're late? That does add up,” explained Kates. “And the mental load of that can wear on you, it can wear your relationships, and it just puts you in a place where you're always feeling like you're on a treadmill.”
Bankrate recommends redirecting extra income and refunds to build the cash cushion. Consider temporarily cutting back on non-essential expenses for a few months to create a financial buffer.
“Saving is a skill and it takes practice and so starting small and giving yourself the ability to try to build over time and not worry about ‘I don't have three months or six months of expenses in my emergency fund,’” said Kates. “Start by thinking about ‘OK, let me give myself an extra week, an extra month, an extra two months’ and just build slowly over time and you're gonna start to see that as the days go by, you're achieving that goal as you go. And that's all that you really need to think about.”
