Let’s talk about float.
As I’ve defined it before, float is the money in your checking account that is above and beyond your paychecks. It is a cushion for your day-to-day balance changes.
Having adequate float in your account is an easy way to allow you to automate your bills and not have to worry about overage charges.
But float isn’t just for ensuring that you always have enough money to pay your bills. It’s also a vital tool in ensuring that your expense tracking is going according to plan.
Are you using it?
Let’s remember the most important equations (glossary):
Income = Bills + Expenses
Or, put another way:
Income – (Bills + Expenses) = 0
In words, in a given period of time (a month is what I recommend) everything you have earned (Income) has to be equal to everything you spend (Bills and Expenses).
If you don’t do this, you’ll either not be utilizing your money most effectively or, more likely, spending more than you make. Neither is good.
But let’s assume that you’re tracking. Since you’re doing it manually and not relying on software to do this for you (which I don’t recommend), how do you know that you haven’t made a mistake one way or the other?
This is where the float comes in.
Float overages and shortages
Your float value, when set up correctly, is the balance in your account at the beginning/end of every month. So this can act as the check and balance against the manual tracking of your expenses.
Because you want to have the same amount at the beginning of the month and at the end of the month, if at the end of the month your float amount differs, then something is amiss, and it’s up to you to figure out what happened.
Here are some reasons why you might have a float shortage:
- You neglected to track an expense(s).
- You had a bill that turned out to be larger than expected
- Your income was slightly off
Here are some reasons why you might have a float overage:
- You got some extra refund or payment you hadn’t expected
- You tracked an expense twice
- You had a bill that turned out to be smaller than expected
I bolded the most common situation.
Here’s an example
Zoe makes $2,000 a month in income, and has decided that a $1,000 float value in her account is best.
Zoe’s bills and expenses equal…can you guess?
Yes, $2,000, the same as her income. (Remember the above equation.)
So the month starts out and Zoe has $1,000 in her account. At the end of the month, Zoe looks at the amount of money in her account and sees that it’s $900.
Uh oh, has she been robbed?
Nope. She looks through her account ledger and sees that there was a $75 clothing expense and a $25 gas fill-up that she never acocunted for.
If she hadn’t been tracking her float, she might not have known that things were amiss. Because she ended up paying $100 extra from what she had planned, she needs to now do one of a few things:
- Spend $100 less next month
- Take $100 from her emergency fund at put it in her checking account (and then build that back up)
- Change the ongoing float value to $900 (not recommended)
This happens to me too
Something similar happened to me recently. While calculating my float, I realized I was down by $170.
I went through my entire month’s bills and expenses, looking for something that matched that value, and came up short. I scratched my head for a while, flummoxed, before the “eureka moment” hit:
I was still waiting on two $80 reimbursements from previous months that hadn’t yet shown up.
(And that extra $10? I consider anything less than $25 a rounding error. Perhaps you had more cash in your wallet than last month. You’re not going to go broke if you’re off by $25 each month.)
Float keeps you honest. You can enter anything you want into a spreadsheet. But you can also lie, or withhold, or otherwise provide misinformation. Most people do it inadvertently.
But use your float amount as a check on your work each month. Your account balance, like hips, don’t lie.
But enough about me. Do you use float as a check on your expense tracking? Has it ever helped you catch something amiss?
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