Pulling Back the Veil on Our Daily Money Management
I thought it would be helpful for some to get really into the nitty-gritty of how we manage our money on a daily (or at least monthly) basis. It’s simple to say “we have joint accounts” or “we use Mint” but what does that really mean? (You can reference a copy of our current budget if you like.)
Start with a Clean Slate
On the first of the month the only money in our checking accounts is the paychecks we recently received – we don’t owe anything and we don’t have anything extra. Basically, we pay all our bills in a month with that month’s money.
First Things First
In our budgeting, we prioritize paying taxes, tithing, and saving for retirement. The paychecks we receive already have taxes withheld and we give to our church and “pay ourselves” as set times during the month. I like to get all the month’s non-discretionary spending out of our checking account as early as is reasonable.
Retirement savings: We both contribute to Roth IRAs bimonthly and we staggered our contributions so that we are buying in just about every week. This was the best dollar cost averaging we could do within Vanguard, though I admit it’s probably overkill!
Tithe/Giving: We tithe individually but our church somehow combines our statements at the end of the year. This is a holdover from when we were single. We also recently added support of a missionary, and we transfer money to her church early in the month.
Targeted Savings: We transfer out the savings for our short-term targeted savings accounts out of checking on the 5th of the month.
Other Bills
We auto-draft all the bills we can (these are mostly utilities), including mailing our property management company our (paper) rent check (I love Ally!). The only bill we pay manually is our water bill, and Kyle takes care of that. We have our credit cards set to auto-draft their full balances late in the month, but we usually pay them manually 2-3 times per month so that autodraft is never triggered.
Discretionary Spending
We use credit cards whenever possible to pay for things to get the rewards and protection, and our Ally debit card otherwise. Our discretionary spending is basically just food, gas, small random purchases for the house, and purchases that will ultimately be paid by our targeted savings accounts.
Tracking
We use Mint to track our spending against our budget. We share one Mint account that has all of our accounts linked to it.
In addition to Mint, I use Excel to track the transfers in and out of our targeted savings accounts. Mint has a record of these transfers, of course, but I like to extra control Excel gives me, especially to make notes to myself and play with estimates of upcoming expenses. I basically just have a pair of columns for each of our targeted savings accounts on which I record the amount of the transaction and a label for what it was for and I track of what the balance of the account should be (not including interest earned).
Targeted Savings
For all of our irregular but anticipated expenses, we use short-term targeted savings accounts. This is so our budget doesn’t get busted by months when several costly purchases hit us and to keep us from wasting money in months when we don’t have those big expenses. Our current targeted savings accounts are for: travel and personal gifts (plane tickets, Christmas), cars (car insurance, repairs), entertainment (season tickets to basketball games, season tickets to musicals), CSA, appearance, medical (dental, optical), electronics (laptops, phones), charitable giving, and taxes. (We also have a general savings account we call our “nest egg” and an emergency fund.)
We save into these accounts near the beginning of the month, and every time a qualified expense hits our credit cards or our checking account I transfer over the money needed from one of these accounts.
Paychecks and Buffer
We get paid on the 25th of every month. We still have a few more expenses between then and the end of the month but we don’t use this money – we preserve it for the start of the next month to pay that month’s expenses with. This “time buffer” is the reason we don’t keep a monetary buffer in our checking account. If some kind of crazy thing happened that drafted money out of our account right at the end of the month, we would have our paychecks there to absorb the blow until we could get it sorted out.
Zeroing Out
In the second half of the month I start doing projections as to how much money we’ll spend and whether or not we’ll end up with a surplus. If it looks like we have a chance of overspending the money we have left in our checking accounts, we’ll be a little more conscientious about buying only what can’t be put off until the next month. By the last day of the month I’m able to calculate our surplus or deficit by taking the remaining balance in our checking account and subtracting our paychecks and the remaining balances on our credit cards. I transfer the left over money to one of our targeted savings accounts, usually our travel account.
Extra Income/Found Money
When Kyle is paid for his small side hustle, we divvy up the paycheck and tithe part, save part, put part aside for taxes, and put the rest into our travel account. With other types of found money that are not income, we either add it to that month’s pot of money (if it’s small, like $30 or less) or put it directly into a targeted savings account (usually a fun one like travel).
So that is how we manage our money throughout the month! I do most of the monitoring and hands-on stuff, but Kyle has access to the same information I do. We talk over or at least alert one another to any purchase we’re about to make and revise our budget together whenever necessary.
How do you manage your money day in and day out – any peculiarities? Do you play any tricks on yourself like we do with our targeted savings accounts? Do you keep a checking account buffer?
photo from Free Digital Photos
Filed under: budgeting, credit cards, found money, side income, spending, targeted savings · Tags: budgeting, money management, month, savings, spending, tracking, zeroing out
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One trick I use when I write a check is to transfer the money right online from savings to to checking. I leave a $100 buffer in checking so I know things balance when the account hits the $100 balance. It gives me a cushion and maximizes the time that my money is in the higher earning savings account.
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Interesting, so you transfer money every time you write a check? Does your bank limit the number of transfers between accounts? I think ours does. Do you use credit cards mostly so you can batch-pay and do only one transfer from savings to checking?
Sounds like a good system you guys have. Simply having this well-thought out system probably puts you ahead of 95% of the population in terms of being headed in the right direction. Great stuff!
I agree. There can be a variety of functioning models but the point is to think through it systematically.
I tried doing the clean slate, (although with a buffer). But I seem to have succeeded too well in getting my wife on board with the idea of the buffer, and now she refused to dip into that cash, even if just for a week. But most of our bills are clumped together in the two weeks of the month, including rent which accounts for almost 60% of our budgeted expenses and due on the first. All told, ~75% of our budget is spent before my wife gets her second paycheck of the month.
But her income isn’t much more than our budget, so we just keep that money in the checkign account, and put my income into savings instead.
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Sounds like you guys need to get another half-month ahead. I wouldn’t want to touch a so-called buffer either! Only in an emergency.
I’m a fan of the ‘clean slate’ approach, as I have a credit card to tide any emergencies over. Actually ages ago I blogged my strategy (http://wp.me/p30yk2-u) with money. Sometimes I think I should leave a buffer, but I am not sure I trust myself that much!
Anything extra in the account at the moment goes to my ’12 in 2′ savings plan – for the 12 dreams/goals to achieve in 2 years. It’s getting full of late, so a Harbour Bridge Climb shall be booked as soon as the weather is good on a day off!
It’s really interesting to hear how other people manage their money – it’s something that I’m really curious about!
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I’m curious about it, too, so I’m hoping this post will inspire a few other bloggers to share their details!
I love applying budget leftovers to fun goals. Are you trying to fulfill all 12 goals at the end of 2 years or did you stagger the target dates?
Oh the idea is to achieve the 12 goals in 2 years, but some things are simple, like ‘do a knife skills course’ – so once I had $85, I did that. Others are longer term, like ‘read the bible’ which’ll take a whole year. Or run a half marathon. So the goals are ‘things’ but I haven’t done many of them cause I was saving for a house deposit, or something ‘big’ – now I have a way to have the money to do the things I want to in life, without the $$ guilt.
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I did something similar – 101 goals in 1001 days. I left off striving for it after about a year but I’m happy with the progress I made. Actually one goal on there was to read the whole Old Testament and that’s one I’m nearly done with! Just the wisdom literature left. 🙂
I do have a rather large checking account cushion just because it doesn’t seem worth it to cut to cut it close. You’re certainly a bit more meticulous than I am about being exact with your budget. I do check my budget every few days to see where I stand, but I find that im always off by +/-40%.
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We basically budget to take the variability out – it’s all in our targeted savings instead. That’s why we don’t usually get crazy far off in any category, but we have huge swings in how much we access any given TS account in a month.
Our time buffer over money buffer works for us – at least so far, we’ve never overdrafted or anything. Credit cards help by keeping some of the payments away from checking until the very end of the month if we ever were getting close.
I’ve started splitting my paycheck so that the amount to cover my budget goes to checking and everything else goes to savings/investments, but now it feels like I’m not saving any money! I think that maybe I need the actual physical entering of the transfer to feel like I’m saving money. I’m also finding it hard to stay within the set amount and not go in and adjust it later! It’s been going mostly okay though.
I miss how with my first mortgage, the balance would go down immediately when I made a payment. With this mortgage, it goes down in overnight processing, so not visible until the next day.
I used to keep a buffer in my checking account amounting to two months’ expenses. This is my first month not having that and it’s a bit strange to see the balance at “only” $3,000ish! There sort of is a buffer in that I keep all budget categories in my checking account and use a spreadsheet to divide it up rather than actual accounts like you do. Some categories add up for quite a while before they’re used, such as travel, property taxes, annual sports fees, a new laptop, etc, which creates a bit of a buffer.
I get paid on the last business day of the month. Right now, my paycheck goes $X,X00.00 to my checking account (spending plan amount rounded up to the nearest hundred) and the remainder to my Vanguard taxable account, 100% to Total International. Some months, I adjust it to go to savings, some months I send $1,200 less to checking and the remainder to savings to pay the mortgage. All depends on how I feel like saving that month. Credit card dividends for my one card get posted into my credit union account near the end of the month and I transfer those to checking and they get taken care of with the buffer adjustment below. The other card, they are a statement credit and that reduces the auto-payment.
Early on in the next month, I do my full reconciliation and figure out how much my checking account should have been at the end. If I’m under, I let it fizzle out next month (since there’s sort of a buffer). If I’m over, I send that amount to savings (either mortgage or investments).
I’ve set all of my credit cards on auto-pay now. Sometimes I make early payments if the balance is getting up to > 25% utilization or I think it will before the auto payment goes through. I really like using credit cards instead of my debit card for spending. I do still think about what I’m spending, but I don’t worry about my checking account balance, if that makes any sense. (I was always worried about overdrafting accidentally before, despite with a huge buffer.)
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Thanks for all the detail – I love hearing it!
Do you think it’s a good thing that you don’t feel like you’re saving? Maybe for you that’s bad but I bet for most not noticing that they are saving would be a benefit.
Are you putting your investments to Total International right now because you’re rebalancing? How many months does it take to finish rebalancing usually? (I guess this isn’t a usual time in the market!)
I definitely understand the comfort of having charges stay on a credit card until you are sure you won’t overdraft at the end of the month – even if it’s not rational!
I’m not sure if not feeling like I’m saving is a good or a bad thing yet. I’ll let you know when I feel stronger one way or the other! I definitely notice my savings when I do my net worth reconciliation at the end of the month, at least.
I’m putting my investments to Total International right now because taxable is the best account for that investment and then adjusting what I put elsewhere. I only rebalance with new contributions and it’s always a fun time trying to keep things in balance!
Leigh recently posted..Optimize Efficiently: Credit Card Rewards
I love the detail here. Your system with automated transfers and separate savings accounts for short-term goals is very similar to ours. We also use Mint and I also use Excel for some custom tracking I like to do, such as for our investments. We do keep more of a cash buffer in our checking account, but it sounds like your approach works well for you. Having almost everything automated makes the time spent worrying about everything very minimal. Thanks for sharing!
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That’s cool we have such similar systems! Have you ever had to use the buffer in your checking account?
I really like the idea of having a targeted savings account. It’s so much more fun to see your account balances rising when you can see what the money is going towards. I think my online bank offers this so I’m going to have to look into it.
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We like it a lot. A single account with virtual delineations of what goes where would work, too, but I prefer this way. I love being able to open lots of savings accounts with no hassle.
Your system is so meticulous! I manage our finances. Hubby has access to all the information but I do the day to day handling. We get paid at different times of the month, so I usually do bill payments, savings transfer based on the dates. I automatically transfer money into savings when we get paid, pay off bills, and make sure we have some buffer. Right now we don’t contribute regularly to our ROTH IRA or a taxable account, yet, but my management strategy when I have to do so.
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It sounds like your system is as involved as ours!
I get paid once a month, and put that money into my first savings account. From then on, I transfer out money every week (which is for rent, groceries, etc – all our main expenses are weekly). I also put money into our ‘bills’ account every week, from which things like utilities, insurance etc are paid as they come due.
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Do you keep your money primarily in savings for a better interest rate?
Emily,
Excellent post! Thanks for sharing the nitty gritty of how you manage your money. A lot of food for thought here.
You probably don’t have this level of detail in your financial management system – or do you? I’m glad to have given you some things to think about!
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