Do your Budgeting with Targeted Bank Accounts
A lot of people hate budgeting, or just plain refuse to budget,
thinking it unpleasant and restrictive. Actually a good
financial plan, including a budget, puts you in control of your
finances, rather than the other way around.
The first step is the hardest: figuring out what you spend every
month. If you have records of what you've spent over the past
couple years, go back and take a look at how much you spent and
what you spent it on. If you don't have such records, over the
next month or two keep a record of everything you spend - and I
mean everything! Gas, food, the magazine and the pack of gum you
bought at the newsstand - everything. That should not only give
you a good starting point in terms of what it costs you to live
during the month, but where the money's going. You may well find
areas where you can cut back without feeling seriously deprived.
Once you've figured out what it costs to live, break the
expenses down into daily, monthly, other periodic expenses, and
incidentals. Daily expenses include gas for the car, food,
medicines, toiletries, cleaning supplies, pet foods and other
pet supplies, and so on. Monthly expenses include rent or
mortgage payments, car insurance, car payments, utilities, et
cetera - any bill that you pay regularly each month. Include
credit card debt in those payments.
Other periodic payments may include homeowner's insurance (if
you pay it once or twice a year instead of monthly), license
renewals, car registration and inspection fees - payments that
need to be made regularly, but not necessarily once a month.
(Include birthday, anniversary, and holiday gifts and cards in
this category; they come around every year!) Incidentals include
one time payments for purchases that are not likely to recur:
pots and pans and other household items, ski equipment and
supplies, etc. If you have car and health insurance requiring
deductibles and / or co-pays, consider depositing those amounts
in your incidentals account; that way, if you're in an accident
or end up in a doctor's office, you've got the cash on hand to
pay for the expense.
Once you've figured out how much you spend on average, monthly
and yearly, put together a budget based on the different
categories. Remember to create a budget based on what you
actually spend, at least initially, rather than what you think
you should spend. (Don't forget the lottery tickets, if you buy
them regularly!) If you have credit card debt, budget for more
than the minimum payments, and pay down your balances, highest
interest rate first.
Don't forget savings; if at all possible you should be putting
money away regularly for yourself. Aim first for a contingency
fund of from eight to twelve months of living expenses, then
think about investing elsewhere. Do you want to buy a home, or
know you're going to need to replace your car? Set up a separate
category for those goals.
Now's the fun part! Once you know what you need to budget each
month in each of these broad categories, set up bank accounts
dedicated to each category. Research the banks in your area
first - banks vary widely in terms of the finance charges they
levy for the services they provide. Try to find a bank that
doesn't impose a finance charge if you drop below a minimum
balance. Some banks even offer free checks, or a rebate on your
first check order.
You might choose to open a checking account with a debit card
attached for the daily expenses; a checking account and a
savings account for the monthly expenses (you can earn a little
interest by depositing your money into the savings account and
then transfer to the checking account as you need to pay bills),
and either a savings or checking account for the periodic and
incidental categories. Maybe you want the convenience of a debit
card on each of your accounts; if so, go for it!
If you want the convenience of transferring money from any
account into any other account, set up all your accounts at the
same bank. If you're like many people and are concerned about
the money being too easily accessible, pick a couple different
banks, so that your daily expenses money is separated by a few
miles from the monthly expenses money. (You can always write out
a check from one account to another if you really need to
transfer money.)
Deposit the appropriate amount of money into each account
required based on your budget for each category. If you get paid
weekly, deposit a quarter of the monthly deposit each week, and
so on. Your employer may offer direct deposit of your pay into
banking accounts; if so, arrange for the correct amount to be
put into each account, and then use your debit card to withdraw
spending money from your daily expenses account.
Finally, sign up for Internet banking; most if not all banks and
credit unions offer this service, which makes it easy to check
on balances and transfer money from account to account. Also
consider attaching your monthly expenses account to their Bill
Pay service, which allows you to pay bills electronically rather
than with paper checking. More and more banks are offering this
service for free.
Once you've got your budget
set up and your accounts established, it's easy to maintain.
You don't have nitpick every penny, because you've got it all
organized in an easy system, and you're in charge.