Here’s the best way to budget money based on all of my life experience up till this point. May all who read this benefit from it.
*Note: This method is an evolution from the “envelope method of budgeting” which works well when you are down to near nothing. If there is no money it is tricky to budget, in such a case go with the “envelope method of budgeting”, otherwise, let’s proceed…
- setup a bank account
- create 5 checking accounts, and 1 savings account
- note: checking accounts are needed because if you do too many withdrawals from savings you will be penalized by the bank
- using online resources name your checking accounts:
- Main – paychecks go here
- Budget – food
- Projects – unplanned expenses for things you want to do, projects, fun, parking meters
- Overdraft – source of overdraft for main, budget, projects
- Monthly – regular monthly payments
- the next time you go to the bank ask the bank teller to configure Main, Budget, Projects to all overdraft from the Overdraft account
- This step is surprisingly difficult, the tellers are in a hurry and very prone to mess this step up. I’d recommend asking to have this setup again the next couple times you go in to the bank. Maybe use the method of saying you have some questions and want to meet with someone, then go to their area and ask them to set it up. Those are higher paid employees in less of a rush, and are more likely to set it up correctly. The last thing you want is a $35 overdraft fee and a teller saying its your fault for not having setup an overdraft account.
- using online resources setup an automatic transfer the day after your biweekly paycheck deposits to Main and deposit half of your
- rent/mortgage to the Monthly account
- credit card payment to the Monthly account
- setup a bill pay monthly to make automatic monthly payments on time to your
- rent/mortgage from Monthly account
- credit card from Monthly account
- using online resources setup an automatic transfer the day after your biweekly paycheck deposit something to
- overdraft, such as $20, since you should not be hitting the overdraft this can build up to something useful over time
- projects, whatever makes sense, this is for things you may want which are not a planned part of the budget, games, fun, projects
- savings, something, it adds up over time – hide this account from normal view if possible, so you can’t see how much is in there
- using online resources setup a weekly automatic deposit from Main into budget, this is your food budget, $100 a person?
- now here is the tricky part, after using a credit card to spend money, you have to access your bank and move the funds used to the credit card account… either right after you do it, or just something you do now and then
Main should only be used for monthly regular bills, if you open up your bank account and look at main it should be a record of only the bills you pay each month. Included in this are regular expenses such as gas for the car.
And that’s it, you may want another checking account for Household expenses if that makes sense or Clothing, but otherwise, long as your stick to the budget you should be good. Long as you have a little left over, the main account will slowly grow over time. Let it have some slush, if it gets up over say twice your monthly budget you can chop off the extra and put it in savings or invest it.