Automate Your Budget – Building the Budget that Sticks to Itself
Do you have a hard time sticking to a budget?
If you often find yourself mentally subtracting a purchase from your bank account in fear you won’t have enough money for your coming payments, you have a budget problem. Alternatively, if you find that you have hundreds of unallocated dollars in your account you also have a budget problem. Allocating your funds with this system will make you feel more wealthy. This post will outline an awesome way to simplify your bills and spending. The answer to your issue is two checking accounts and one savings account.
We’re going to call them Spending Account, Billing Account, and Savings Account.
Setting up your accounts with the bank:
- Spending Account:
Call or walk into your banking institution and set up a second checking account. This account will be your general spending account. Have the teller assign this account to your debit card for making day to day purchases. This will include things like gas and groceries.
- Billing Account:
Using your existing account as your Billing Account is easiest because all of your bills and direct deposit are likely already set up with this account. We will use this account to process all of your fixed monthly costs such as car payments and rent.
- Savings Account:
If you do not have one already, set up a daily interest savings account. This will be used as an emergency fund. We aren’t worried about interest rates here. We need a separate account that can be easily accessed for extra costs in the case of an emergency.
Automating the Process:
In this example, we will use a bi-monthly pay of $1200.00. By combining our monthly fixed payments, we found that we need to allocate $600.00 for bills, and $100.00 for our emergency fund. In total, we need leave $700.00 in our billing account per pay check.
- Set up an automatic transfer on the day after your pay day. This will be the amount remaining after subtracting your fixed billing amounts ($1,200-$700= $500). We will make a $500 transfer from Billing Account>Spending Account on the day after your pay day.
- Set up a second automatic transfer on the day after your pay day from Billing Account>Savings Account.
- If you have a TFSA, you can direct a third transfer from your Billing Account>TFSA.
Automating my billing process has reduced a lot of stress around bills. My bills are already mentally paid by allocating the funds in that account, meaning I don’t need to think about how my purchases will affect my future bill payments. Additionally, I combine all of my monthly bills into two payable amounts giving me the exact same amount of spending money each pay check.
Have you ever tried using two bank accounts? Do you plan on giving this a try? Let me know in the comment section! If you have a bad habit of over spending or spending on credit, check out my post on breaking a bad habits.