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.
Aldene Fredenburg is a freelance writer living in southwestern New Hampshire and frequently contributes to Tips and Topics. She has published numerous articles in local and regional publications on a wide range of topics, including business, education, the arts, and local events. Her feature articles include an interview with independent documentary filmmaker Ken Burns and a feature on prisoners at the New Hampshire State Prison in Concord. She may be reached at amfredenburg@yahoo.com.
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