The Difference LBYM means

[Senator]

I just got back from a fishing trip with some relatives. One of the relatives had a vehicle issue and it required a new serpentine belt, as the old one broke. He is 55 years old, about 10 months younger than me.

We could not get the hood open as he had not used the truck in a year or so. The latch was rusted shut. We eventually did get it open and went to get the new belt. He had not used the truck much, but of course he needs it...

We went to the auto parts store and picked up the belt and a few other items. ~$65 total. His debit card was declined, so he used a different one. On the way back in my truck, he called the bank to see what happened. Evidently he only had ~$10 in the account…

This relative just got laid off due to the company trying to save money and reduce the higher paid ($120K) employees. He received ~$6300 for vacation balances and deposited the check in the ATM, so it was not immediately available. But I would NEVER let my account get that low. Especially if I got laid off. He had 2+ weeks official notice, and many more weeks unofficial writings on the wall. When my balance gets below $1,000 I get worried. (Meanwhile, I wish for a layoff and severance. He gets an additional 8 weeks)

How can you only have $10 in the main bank account WTF? His wife also makes $100K+ a year. He is interviewing for a new position at a different mega-corp.

He is also going to tear down his lake home and build a larger lake home (in addition to his regular home). He showed me the plans. $600K for just the house. It has a sauna, steam room, 3-car garage, etc. He needs the three car garage as he ‘needs’ one car each for him and his wife, a convertible and a truck.

He said he should get some money from an inheritance in a few years to pay off about half of the mortgage.

He plans on retiring in 5 years or so, and maybe picking up a job at Home Depot or other place like that. Yeah, right… Plan on working until 90, or a large inheritance.

 

[travelover]

...........He said he should get some money from an inheritance in a few years to pay off about half of the mortgage.
...................

That's my plan, too. I just need to find some new, rich relatives.

 

[frayne]

He just has a different strategy is all, hopefully it will work out.

 

[Major Tom]

How can you only have $10 in the main bank account

I have known very few people who have a genuine reason for letting their checking balances slip that low. With most who do, it's poor money management and not lack of money that is the reason.

I have known a number of people who were earning minimum wage, some of them raising families, and who always managed to have money for the essentials. Granted, the lower your income, the more efficiently-run your ship needs to be, but there is nearly always a way, IMO.

In the case of your relative, it would seem to be a clear-cut case of poor money management (I know I'm stating the obvious with his healthy income level!)

I was about to say that I have a lot less tolerance for such things than I used to but I find that as I age, I have a lot less tolerance for many things. Grumpy old man in the making here

 

[dallas27]

I keep 10-15k in the checking, and another 15k in the my businesses checking, anything below that and i start having nightmares about black swans.


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[Major Tom]

I keep 10-15k in the checking, and another 15k in the my businesses checking, anything below that and i start having nightmares about black swans.

I am similar. I get nervous if my checking account balance goes below $7K - which represents about 5 months living expenses (I'm low income/cheapskate/frugal/pick your descriptor).

 

[RetireAge50]

He is smart because checking usually pays very little interest. Sounds like he has a plan and life is good.

 

[samclem]

I don't have much sympathy for a person with money who doesn't take time to manage it.

OTOH, I have a lot of sympathy for those who make very little, truly need to spend almost all of it on real necessities, and therefore have little cushion in checking account (if they even have one). Living close to the line results in all sorts of inefficiencies whenever a small unexpected expense arises (bounced check fees, payday loans, having to buy expensive/less-than-the-appropriate items because favorable terms are offered, etc). It's a bad cycle that can be avoided with just a little bit of cushion. Still, I'd guess the vast majority of people stuck in that vortex are there due to poor decisionmaking.

 

[namesbond]

I personally keep very little money in the bank. When I get paid I immediately transfer money to my I-bonds for Emergencies, Roth IRA, HSA, and pay mortgage + principal payments. All that is ever in my bank account is enough to get me to the next paycheck on purpose.

 

[W2R]

Some people keep their checking account balance really low like that, because they want to put as much as possible in savings or portfolio and get some yield.

But with interest as low as it has been, I'd rather have a big balance in checking than in savings these days. To me that's one of the few advantages of low interest rates.

When working, it makes a lot of sense to me to make a HUGE effort to LBYM and save until one is FI, and to do it ASAP. Becoming FI is not an easy task, but it takes away a lot of the fear of being laid off at a relatively older age.

 

[emerytura]

It seems like his mind must be like a wild cluttered jungle with thoughts all over. Hopefully he will get himself on better track or it will lead to bancrupcy.

 

[cantlogin]

Why is he using a debit card?
A cash back credit card is a much smarter vehicle, especially for big spenders.

 

[Danmar]

NSF fees are still very high at US banks. Not so much in Canada. I like to think there is a valid cultural reason for this but not sure. I keep our cash balances (checking and savings) in the mid 6 figures to be very safe and to smooth out divs received. Log into banking records at least daily. Never been over drafted.

But like samclem, I realize most people don't have this luxury and for many it's a real struggle.

 

[YeahNo]

I will say that for me, when we have a low operating checking account, it makes for some cool psychological changes.....I SPEND LESS. There is a trade off though as I do seem to get a little uneasy feeling when it is lower. A balance of not stressed but not feeling "flush" with cash is what I shoot for.

Poor money management is how you get $10 in your operating account. If he was paying attention at all that would never even get remotely that close to 0.

 

[rodi]

I keep a mid-4 figure balance in my checking (5k).... It's higher right before I pay the big bills of the month (health insurance and credit cards), and then settles down at around 5k again. Fortunately the timing is such that some bills correspond with some income sources (rent in vs insurance out, DH's ss in vs CC bills out.) When it dips below $5k I refill it.

I do have a few accounts that have very low balances - my penfed savings account for example - opened it to establish an account at penfed before opening HELOC and visa cc account. My HELOC account is zero... but that's a good thing since it's credit.

I have a friend who keeps a bottom balance of $100 for her main checking - she transfers money in as she pays the bills. She has a high yield account of some type that she parks her cash stash. She never bounces a check or payment - so it works for her.

 

[easysurfer]

I used to keep my checking account low. Just enough to cover the monthly bills. I do a good job of balancing. But back when w*rking, my boss procrastinated about approving some travel expense vouchers that caused my checking to bounce. The cascade effect that incurred about $100 in fees. Now out of habit, I keep plenty enough in my checking.

 

[Cobra9777]

OP's story reminded me of my 54-year-old friend who hasn't had a steady job since he was laid off at 41. He currently lives with his girlfriend and, in lieu of rent and utilities, has been making improvements on her house. He proudly showed me photos of his latest project on his brand-new giant smartphone.

He got a modest inheritance when his mother passed. He used most of it to buy a new boat and fix his Harley. He has lots of "toys," most of which don't run. Prior to the inheritance, he had consumed all his savings and was living on proceeds from the sale of his house.

Since getting laid off 13 years ago, he has worked occasionally as a contractor in his field, which pays quite well. But this has been phasing down to almost nothing. He told me he turned down a 3-month gig recently because he had the inheritance money now. I asked him how long that would last and he said, "well, maybe 6 months, unless I decide to fix the transmission in the truck, so I can haul the new boat to the lake."

He was here for a Labor Day gathering and BBQ at our house. I overheard him telling people he was "retired." He was getting the usual "you're so young" reactions. I just rolled my eyes and flipped the chicken thighs.

 

[UpAnchor]

On the way back in my truck, he called the bank to see what happened. Evidently he only had ~$10 in the account…

How can you only have $10 in the main bank account WTF? His wife also makes $100K+ a year.

My first thought was, "Yeah, but what did he have in his savings account? Investment portfolio?" Many of us have known at least one person whose outward signs made it appear that they were just squeaking by, until we found out quite the opposite. Perhaps just MND types, living frugally while rat-holing the vast bulk of their take-home pay. (Although I doubt cutting it that closely would be typical of most true MND types.)

But then OP told the lake home story...


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[easysurfer]

... I just rolled my eyes and flipped the chicken thighs.

I like that .

 

[flyingaway]

I normally keep about $1,000 cash in my checking account at the end of the month. It gets refilled at the beginning of the month with the paycheck. Surplus money is moved to an online savings account, deficit money is refilled from the online savings account.

I used to occasionally have between $30K and $100K in my checking and savings accounts (for house down-payment or new car payment), and my bank would call my frequently to recommend many "investment" opportunities. Once I was at the bank, one representative tried to show me how stock returns are better than interests of the savings account historically, I think he did a very poor job, since he had to check his book frequently to present the ideas that I already knew very well.

 

[ESRwannabe]

I typically keep an extra months worth of living expenses in my checking account.

I used to keep a years worth of living expenses in cash back when my investment income was less. If I ESR I'll set aside 2-3 years in cash first.

I no longer keep that much money in cash as my brokerage account investment income (dividends) is equal to around 73% of my living expenses and div growth rate is currently around 6% per year.

I'm 39 and working full time. Maybe I will ESR when I'm 45ish.

I'll also add that if/when I need more money than usual I would just use a credit card and pay it off the next month. I only have two credit cards but each one would let me borrow about three months living expenses in cash.

I make about twice what I spend each month and that extra money is typically invested in my brokerage account. So there is always extra cash coming in each month if I need it. Worse case scenario I sell some investments to raise cash.

 

[mystang52]

$10 in a checking account is admittedly too low, but I try to keep my balance at no more than $1000 or so. It only takes a few buttons to push to transfer money into checking for a big ticket item.
But as others have pointed out, OP's relative has more serious money management issues than a low checking account balance.

 

[utrecht]

Forget about how much money he has in the bank. I wouldn't even be going on a fishing trip if I was laid off. Unless the "fishing trip" meant a couple hours going to a local lake and everything was free.

 

[pullmyfinger]

There was a time when I would routinely get my checking account down to $10-20 between paychecks. This was in the mid nineties and I was an active duty lieutenant living overseas and had purchased a house stateside (the one I live in now) and I took out a 15 year mortgage at 7.75%. I would throw everything I could scrounge up on the house and then figure out how to scrape by on the rest. Some two week stretches were easier than others. I ate a lot of cheerios. Actually I still do eat a lot of cheerios. I did pay off the mortgage in 2 years. I definitely wasn't going to the officer's club for drinks. Of course many military members lived paycheck to paycheck, the Commissary would be almost empty the day before payday because people knew that their checks wouldn't be cashed until the next day. I was doing something similar, but at least I got a house in the end. We are now FIRE'd, but I have suggested using this strategy to my DH just for fun and he is surprisingly not interested.

I suspect the OP's family member is not trying to pay off a mortgage, but is just massively disorganized. I do wonder how some people are able to function at their jobs when their financial lives are in chaos.

 

[Car-Guy]

I keep what many here would probably consider too much in my checking account but some of my hobbies (e.g. cars) can require a lot of immediate cash. There was a time, some years ago, before the Fed forced rates down so low, that I played the game of transferring money around between accounts to get the better interest rates. But at today's low interest rates it doesn't matter too much.