Chapter six · about five minutes
Where your savings should live
You have two cushions now, and at least one of them is going to sit untouched for years. Leaving that money in your everyday account costs you a little every year, quietly, and fixing it takes about twenty minutes once.
Chapter one said your money does not move
It did, and that was true. Envelopes are labels. They tell you what your money is for without shifting a single dollar out of the account it is already in.
Labels and places are two different things, though, and it is the place nobody has looked at yet. An envelope says what the money is for. An account says where it waits. For most of your money the waiting is short and the place does not matter much.
The cushions are the exception, because they are the only money you own that is not just passing through on its way somewhere else.
Money that sits still quietly shrinks
Prices tend to drift upward. Not dramatically, not every week, but over a year or two you notice that the same trip to the supply shop costs a bit more than it used to.
Which means money that sits somewhere doing nothing does not stay still. It slowly buys less. Three thousand dollars left alone for two years is still three thousand dollars, and it is quietly a slightly smaller amount of actual things.
Doing nothing with money is not neutral. It is a small decision with a small cost, taken every year without noticing.
A checking account is a doorway, not a room
Your everyday account is built for money that is passing through. Money arrives, bills leave, and that is the job it does well.
It is not built for money that is going to sit for a year, and it usually pays little or nothing for the privilege of holding it. That is fine for the money moving through. It is a waste for the money that is not.
Your everyday account
- What it holds
- This month. Money coming in from clients and going out to bills.
- What it pays you
- Usually little or nothing, and that is not its job.
A savings account
- What it holds
- Money that is meant to wait, sometimes for years, instead of passing through.
- What it pays you
- More, and how much more varies a lot between places. Worth comparing.
What to actually go and do
Open a savings account that pays interest, and move the money that waits into it. That is the whole errand.
Check one thing before you look at anything else: that the account is federally insured. Banks put FDIC on the page and credit unions put NCUA. It takes about ten seconds to find, and anything that will not tell you plainly is not a candidate.
Then compare. What different places pay varies more than most people expect, some of them pay almost nothing, and the ones without branches are often worth a look. Ten minutes of comparing is the highest-paid ten minutes of your month.
Your two cushions do not behave the same way
The one you keep for the thing that breaks barely moves. It might sit there untouched for years, which makes it the easy case. It belongs in savings and there is nothing else to think about.
The salary buffer is a different animal. It takes money in and hands money back every single month, so moving it somewhere else adds one small transfer to the month you are paying yourself in.
If that transfer is nothing to you, move it too. If it is the kind of small errand that would end with you quietly skipping your own pay, leave the buffer where it is and let the other cushion do the earning. Nothing about where an account lives is worth breaking the habit chapter four just built.
The thing that matters more than the rate
There is one rule that beats the rate, and it is worth more than any comparing you do.
You have to be able to get the money quickly. Same day, or next day. The whole purpose of these two pots is to be there on a bad morning, and a pot you cannot reach on a bad morning is not doing the job you built it for.
So anything that locks the money up for a fixed period, or that can be worth less on the day you need it than it was on the day you put it in, is the wrong home for this particular money. Not because those things are bad, but because this is not the money for them.
Investing is a real and separate question, for money you will not need for years and can afford to watch go up and down. It is not something this app or this book will advise you on, and when you get there it is worth an hour with somebody qualified.
Your envelopes do not notice any of this
Here is the part that surprises people.
Moving money from your everyday account into savings is a transfer, not spending. Nothing left your business, so no envelope changes. Your cushions still show exactly what they showed this morning, because the money still has the same job. It is just waiting in a better room.
That holds as long as the savings account is part of your plan, rather than something you only keep an eye on from the side. Your budget then counts the total across both, which is the whole reason a label and a place get to be separate ideas without either one lying to you.