When it comes to spending money, I think I am like most people. If
I have a Dollar in my pocket, then I have to spend it. Budgeting is
probably one of the hardest things to do, but once you have a
system in place, it gets a lot easier. The first thing you can do to
budget your money is to give yourself an allowance. The way you do
this is by figuring up all your petty expenses for one week. Such as:
gas money, eating out, going to the bar, or any other small
expenses you have during the week. Figure out the total. We will
say the total is $50.00. Now when you receive your paycheck. Keep
fifty dollars, and put the rest in the bank. Never carry more than
your allowance in your wallet. If you don't have it you won't spend
As for the credit cards, I have a little trick I use to keep me from
using them to often. Take a portion of your weekly allowance, say
ten dollars, and put it on top of your credit card. When you want to
buy something with your card, you have to use the ten dollars first.
If your purchase was twenty dollars, then use ten dollars cash and
ten on the credit card. Having the cash on top of the card acts like a
Stoplight. If the cash is there, you can use the card. If it is not, then
ask yourself if you can wait for a week to buy what you want to buy.
If you really want to by the item, you will go back later and get it.
Of course there will be emergencies sometimes, but this has saved
me much money.
Now let me introduce you to my budgeting system. It took years of
trial and error to get to this, but now it is a smooth running
machine. I've been using it for about 10 years now, and my most
recent credit score is 815. The highest you can go is 850, so I am
doing pretty good. If you have a high credit score, then you
probably have good budgeting skills. My system is all about
simplicity, once in place, you don't have to think about it anymore.
Sure there is some initial work you have to do to get set up, but
after that it is fairly simple.
I have placed a budgeting worksheet at the end of this chapter.
Make some copies of it, most likely you will not like the first one and
you'll probably end up doing a couple of these. This system requires
you to have two checking accounts, and one savings account. I also
have developed a spread sheet that does all of the figuring for you,
This system requires you to have Three bank accounts. I
recommend (just to keep temptation under control) that you keep
your primary checking account in a separate bank from the other
two accounts. Your primary checking account should be at your local
bank, and you should not have an ATM card for this account. The
other two accounts should be in different bank. One will be for
spend money, and the other for savings, and feel free to have an
ATM card for these accounts. I would recommend finding a bank
that does not have minimum balance requirements because one of
these accounts will have your weekly allowance, so you may zero
this account out sometimes. Having one of these accounts as a
checking account will allow you to use your savings money to write
a check if there is an emergency.
There is a simple way you can open these two other accounts from
your home computer. First you will have too at least have one
checking account at a local bank. Then, you can set up the other two
bank accounts with ING Direct or another Internet bank you like.
This is the way to go if you can handle a computer, just simply go to
there web sight at home.ingdirect.com and set up the accounts, it's
much easer than going to a bank and setting up the accounts, there
is no minimum balance, and you will make higher interest. First set
up your savings Account, and then once it is set up, setting up other
accounts takes about two minutes.
If you Decide to use Internet banking (I recommend it) then rather
then using Direct Deposit to spit up your money, It is much easer to
deposit your whole check into checking, then use Internet banking
make automatic deposits to the other account from your checking
account. One good point of doing this will be that it is very easy to
change the deposit amounts anytime you would like to make a
change to your budget.
Now, take a look at the worksheet or the spreadsheet if you have it.
You will need to have your bills handy and a calculator to use the
worksheet. The first step in budgeting is to figure out your weekly
pay. This is the amount you take home after taxes, and after other
deductions like, health benefits, and retirement accounts. If you
have other income, you have to also add it in. next figure the total
of your monthly bills, such as your car payment, groceries, rent,
credit card bills, utility, cable, any monthly expense. just follow the
directions on the worksheet to keep it simple. Some bills are
quarterly, so you might have to do some math to break them down
to a monthly total. On the sheet, I ask you to add 10% after you
add up your bills. There are always some unexpected expenses, so
10% seems to work out good to cover them. If this percentage is
too high for you, try a smaller percentage if necessary.
I highly recommend keeping at least a five hundred dollar cushion
in you Checking account. It may take a while to build it up, but
make minimum payments on your bills to set up this cushion. It is
your first defense against mistakes, and you will make some. Five
Hundred may seem like a lot, but one Car Repair could take away
this cushion. If you can't afford five hundred, start a little lower, but
be very careful not to go under your set amount.
If you are trying to budget for you and a spouse, I would
recommend that you both have a separate spend accounts. Aside
from that, it is really up to you if you would like to share the other
accounts or have two separate budgets. Having separate spending
accounts will help with two people that have different spending
As for credit card payments, you need to budget them as well. You
have to pay a set amount on them. Don't over do it, because trying
to pay them off to fast will leave you with no back up for
emergencies. Make it an amount that you can afford every month.
As you do this worksheet, you might find that you need to adjust
your spend money to give yourself some savings. Or on the other
hand if you can afford to, be a little generous with your spending
amount, because it is better for you to have a little extra spend
money than to raid your savings account all the time. Do your best
not to use your savings money.
At the bottom of the worksheet are your Direct Deposit totals. Your
primary checking gets all of the left over money; this is always the
first account on a direct deposit slip. Then there will be a set
amount for your spending account, and for your savings account.
When you fill out a direct deposit slip from your job, you will need to
have routing numbers and account numbers for all the accounts. All
this information will be on the bottom of the checks you receive for
the accounts. The exception is the savings account, the routing
number is always the same for each individual bank, but you would
also need to have your account number. Once you think you have
figured out your budget. Don't be afraid to try it out. Try it for a
couple months. Once you get started with this. It will become easier
and easer to manage your money. This system can still be done
without direct deposit, but in that case it would be best to make one
deposit into one account, and transfer money to the other accounts
through online banking, this is very simple with ING Direct, and can
be done automatically after each paycheck is deposited into your
primary checking account.
This system works great for people that have a problem keeping
their checkbook up to date. The idea here is that once this is in
place you should not have to think about your money anymore. Your
bill money, spend money, and savings are all separate, and once
you fill out the direct deposit slip, you won't have to wonder if you
will be able to pay your bills or not. There is no more thinking
involved. It is very important that you have a savings account, even
if you only put a very small amount in it to start with. This is your
emergency money, and the first step in getting rid of your credit
cards. Aren't you tired of paying everyone else? Think of this as
paying yourself. Make room in your budget, and put some money
away. It becomes easy to ignore this account after a while. But if
you have some major auto repairs, or another emergency, then this
is how you keep it off of your credit cards. Also by putting the extra
money into savings, you are less likely to spend it when you pay
your bills, but you will have it in savings if you need extra. You must
always save at least some money every month, or else the debt will
just keep rising.
Always pay higher than the minimum payment on a debt payment if
possible. If it is not possible, you should consider consolidating all
your dept into one loan. The payment will be lower, and you should
be able to pay a little extra on it.
Direct deposit is a great tool. I was highly resistant to this for a long
time. I guess because it was just to technical or something. I have
found it to be great for budgeting. For one thing, it allows you to
split your paycheck into 3 or more different bank accounts in the
amounts you want. It saves me a lot of hassle at the banks. I
almost never go to the bank anymore. I also can transfer money
from my savings to checking from my home computer or by phone.
Since all my budgeting is done on the computer, this is very
convenient. Just because I like direct deposit does not mean I like
Auto Pay though. I have had some bad experiences with this, and I
will never let anything be paid automatically from my accounts
again if I can help it. I want to have complete control of what I pay
out. I don't think auto pay is a good Idea. You need to be able to
have the control to stop payments if you want to. If you use auto
pay especially from a credit card, it is almost impossible to stop a
payment. This means that once you let someone have access to
your account. You cannot even cancel that account until the bill is
paid. Be careful with anything that is auto pay, and avoid it if at all
Extreme budgeting is for those who can't seem to Save or even
keep enough money to pay the bills. I have been working my
system with varying people, and there are those who really want to
do things right, but are just too impulsive to do the right thing. I
have also found people who work a lot of over time can have a very
wide variation with there income, which makes it much harder to
budget. I have found a way to make a slight change to this system
to handle this situation.
Most people either get paid Weekly or Biweekly, and most bills are
monthly, so what happens is that even though it seems that you
have a lot of money in your checking account, the reality is that it
may not be enough to pay the bills when the come. The illusion of
having money especially when there is overtime involved makes
people believe that they have more to spend then they really do.
Internet banking (ING Direct) Creates some great options to solve
this problem. With internet banking it is very easy to set up an
automatic withdraw on the same day you are paid, weekly or
biweekly, but also, you can set up an automatic deposit to your
checking once a month when the largest bills arrive. In this
instance, your Checking Account becomes another short term
savings account, and ING Savings(internet bank) is for long-term
savings. Once you break your bills down to Weekly or Biweekly, just
add that amount to what was going to savings. Once a month set
your monthly bills total to automatically transfer back to checking.
You Can adjust this any way you would like. It could just be for your
large bills, or it could cover all your bills. The only other thing I
recommend is that you keep a good cushion in your checking. I
recommend five hundred to start with. This will be needed if you are
going to use this method to pay your bills. There are always small
bills that need to be paid biweekly, so you will need to have some
money available to pay them. Just realize that there is no extra
money to spend once you hit the limit you set. It is only to be used
Once you get an understanding for how this system works, you will
find little variations of how to make it work best for you. Internet
banking creates a lot of ways to spread out your money and do it
fairly simple. At first, just keep it as simple as possible and follow
the easy budgeting system. If you find that you are too impulsive to
do it that way, try the extreme budgeting style.
There are four levels of saving that I have found. We covered the
first two; savings and checking. Beyond that there is short term
saving, for example; saving for a new car or a vacation. Then there
is long term saving which would be for retirement. Once you have
started budgeting. It is always a good idea to take a small amount
out of your weekly pay and invest it for retirement, even if it is only
a couple dollars. As you start to pull out of debt and save more
money, you will be able to invest more for retirement. As for short
term saving. I mentioned in the previous chapter about buying cars.
If you pay off a car, then why not take that payment you where
making, or at least some of it, and put it in it's own account. I like
to put it in a separate account because I want this to be money that
I will not touch. This money is for a specific purpose and you want
to put it somewhere that is hard for you to get it. When it is time for
you to buy a new car, it will be ready. I also use this account as my
emergency account. I try to keep a minimum balance of $3000.00
dollars. For myself, this is an amount that should cover most
emergencies such as home repairs, or other unexpected expenses. I
set $3000 as my goal; you should make a reasonable goal for
yourself. A good way to set a total for this goal is to take your total
expenses for one month, and set that amount as your goal for
savings. I will try to leave this account alone until I reach my goal.
Then once the goal is reached, I will start using a portion of the
money I deposit in the account to pay extra on my dept. If you have
no Dept, then start to invest in anything that will pay you higher
interest. I invest a portion in gold and silver coins, but the options
are endless such as CD, Mutual funds, Roth IRA's, Stock Market, try
different things, and use what you feel comfortable with.
I basically have four accounts that I use. One for checking, one for
saving, one for investing, and one for spending. The only account I
have attached to an ATM card is my spending account. Using direct
deposit, I make deposits in all the accounts from my paycheck. I
put my weekly allowance in an account (for spending) and use my
ATM card to withdraw it. It is more or less a way for me to keep
extra money out of my pocket. If I don't spend my allowance for a
couple weeks, it is a nice surprise to find that I have extra money in
the account. The other nice thing about it is that I never have to go
to the bank. Anytime you want to transfer money from one account
to the other it can be done over the phone or online.
I have found though trial and error that it is easiest to pay bills
biweekly. I get my paycheck Biweekly, and I like to do my bills the
same day as I get paid. If you are paid weekly, this is also all right.
Paying bills once a month does not work, because there are so many
different due dates for bills. You can never cover them all in one
day. When I do my bills, before writing any checks or using online
bill pay, my computer program will let me know if everything works
out and if I need to move some money from savings to checking.
When I do my bills, all of my withdraws are written out on the
computer in front of me. If there is a problem, and I do not have
enough money to cover my bills, I can easily decide which bills I
can wait to pay on. After all the numbers work out on the computer,
then I will write out my checks or put the amounts into bill pay, and
I do not have to worry about the bills that are still due, because
when I get my next pay check. I will turn on the computer and it
will tell me what bills I need to pay. In the long run, having a
computer will pay for itself. It is very hard to make a mistake and it
will keep you from having to borrow money when you do make a