My emphasis in our house (between my wife and me) is to keep spending on budget.
There are 2 or 3 things which influence the budget and how I do things.
First is multiple bank accounts are a good thing. We have 4 bank accounts (at two different banks). Checking and Savings Accounts used for various reasons (more on this later).
Second is debit cards are BAD things. Cash rules.
Third, over budget and under pay to create a minimal cash buffer.
We look at out bills and organize them-
long term debt (mortgages), permanent monthly expenses (like IRA's), permanent monthly bills (like electric, gas, cell phones, insurance, home phone, satellite dish), mid term monthly expenses (car payments) and permanent monthly CASH expenses (gas for cars, grocery, hair appointments).
Long term debt and permanent monthly expenses come out of one SAVINGS account. In our case this budget is $1660 for 1st mortgage, $430 for second mortgage, $480 for escrow (prop taxes and insurance), $625/month for my Roth IRA and $350 for my wife's Roth IRA. The $625 maxes out IRA for me in June, the remaining months this is accumulating a cash buffer in this account.
Permanent monthly bills come out of a checking account. We overbudget as much as possible (gas/electric bill budget is $300/mo, we don't come close to this 6 months a year in Ohio). There is no debit card for this account, so this money accumulates "slowly".
We have a second SAVINGS account for mid term monthly bills (our two car payments). We also have our cell phone coming out of this account... When a car gets paid off, this account accumulates money.
We have a second checking account which is for cash expenses. Groceries, Gas and hair salon are cash expenses. This account zeros out the day we withdraw the cash.
We have two incomes.
I get paid twice a month. $1700 from each of my paychecks get put into account for the mortgage and IRAs. The rest is in the checking account we pay monthly bills out of.
My wife gets paid biweekly. This complicates calculations... if you look at our spread sheet for a given month we may run one account at a deficit (until we hit that month where she gets 3 pay checks). But trash bill comes once every 3 months, as does sewer/water... so it evens out over course of year- not to mention electric bill is not as high as we budget. But it's important to look at this at both weekly/monthly/yearly expenses relative to paydays.
We calculate how much cash we need for groceries ($75/week), hair ($20/week) and gas ($100/week), then make sure $390 from each of my wife's paychecks is put into the checking account. We withdraw it all in CASH. It must last two weeks. My wife gets her hair done 6-8X per year, so that $20 adds up to the real $90 hair appointment for her and $10 hair cut for me.
How to create a budget
February 21st, 2007 at 11:00 am
February 21st, 2007 at 07:19 pm
February 22nd, 2007 at 07:17 am
For example, one check from my wife can cover a whole month's IRA contributions. Meaning it's obvious we are on close to only 1 1/2 paychecks. If we removed one car, we could save the other half of her paycheck. This was obvious when we created a spreadsheet of our weekly, monthly and yearly expenses.
For example, we have a one time $440 homeowners association fee, and two large car insurance payments each year. When looking at a yearly salary and dividing these by 26 (number of paydays per year) we knew if we set this money aside in an account which we don't use (often), the money would be there when we need it.
We also knew that we wanted a mortgage payment in the bank, and $625/mo over funds my IRA in mid June... so it made sense to combine the account with the IRA or mortgage to allow that extra mortgage payment to accumulate and collect interest.
It also reduce the amount of cash in accounts with debit cards.
It also established how raises are spend.
My check is $X into savings account xyz (Mortgage and IRA- an fixed amount which will never increase), then what ever is remaining ($A) into account abc. If I get a raise, abc gets more cash.
My wife's check is $T into account TUV. Car payments, cell phone payment. This amount is fixed. Cannot go up (the bills in this account do not change). $A into account abc. This is monthly expenses. These bills fall within a range. This account will accumulate some money. Remaining paycvheck $Q goers into account qrs. This is cash expenses. If my wife gets raises, we have the cash to spend, because all other counts can sustain themselves.
The tough part is following the budget. Once raises come in. it becomes disposable income.