I always tell clients (and I do it with our household, too), to have a cushion in your checking account of $300-500. The reason for the cushion is because your slightly higher electric bill, random extra co-payment for the doctor, 2 quarts of oil for the car are NOT in your regular monthly burn rate and not big enough to dip into savings for. They are also not full discretionary items like a new sweater or a dinner out.
Having the cushion let’s your household absorb the up and down nature of some bills. Anyone who has every used extra data on their phone accidentally knows how phone bills can fluctuate.
Cushions are also for timing issues like if one bill comes due when you are waiting for another paycheck. A cushion is necessary to stop living check to check from both a TIMING and FLUCTUATIONS standpoint.
A slush fund is when you keep a bunch of money in your checking. A “bunch” is anything over $500 extra after your regular monthly burn rate. These dollars do not have a job, no purpose, no mission in life and we all know idle hands are the devil’s workshop.
The same is true of money that has not been assigned a job. This money sits there for a while, but inevitably, (ALWAYS) it gets spent and usually on frivolous things. Slush funds are bad.
Instead, have a cushion in your checking account AND have a Rainy Day Savings account with $3000 for a family with a mortgage and $1500 if you are single or for couples who rent. This account is for home or car repairs, emergency plane tickets, root canals, etc. Most importantly, your Rainy Day Savings account is for ANYTHING that comes up that is not your normal monthly burn rate and not fun/discretionary item.
Yes, you are the adult and you have to decide whether a quick trip to see your family is a full discretionary item or a Rainy Day item and I trust you will know the difference, because at the end of the day it only affects you.
If you use some money from your Rainy Day account for a car repair or whatever, replenish it the next month with your normal monthly savings. Divert your savings for that month to the Rainy Day account and replenish it. When it is back up to $3000 (or $1500), begin saving as always again.
The key is that every savings dollar has a home/job/mission . AND, you have a small fund for the “crap that happens.” You do not have to charge annoying repairs and “crap that happens.”
If you like having a bigger cushion because it helps you sleep at night, fine, have a larger Rainy Day Fund, but do not leave that money in your checking account. Your checking account can AND SHOULD go down to just a few hundred dollars by the end of your month. Note, the end of your month may not be the 30th depending on when your paycheck comes, etc.
Do not mix your Rainy Day Savings with other savings or Emergency Savings. A Rainy Day account is small and for use when stuff comes up. Emergency savings is critical and only for catastrophes (e.g. divorce, disabling injury/illness, and job loss). Do not mix them.
I promise once you get the hang of using your Rainy Day account for anything that is not a typical monthly expense, you will love it. You will spend less.