Money Management for Dummies

*I’m the dummy.  I’m terrible at following a budget.  Even when I think I’m doing awesome, I usually end up with some sort of shortfall.  That was taking a toll on our savings account, so T and I put our heads together and came up with a brilliant (mostly his idea!) plan.

I sort of feel like a 50′s housewife with an “allowance” but we’ve implemented this new method for April and so far, I can see that it will make keeping track of our spending trends and our savings, much easier than before.  It also helps me keep our grocery and eating-out budgets reigned in…we’ve had months where we’ve gone over those 2-3x!

So, here’s the plan.  It requires 3 accounts.  We have a money market for savings and two checking accounts.  So, all T’s paychecks go into the savings.  Every last cent.
This number is the number we have to work with every month when the first comes around.  Then from there, that amount of money is routed to the checking accounts, after being divided appropriately.  We picked a number that we can spend, in total, each month, AFTER contributing 1/3 of our income to savings.  This remaining 2/3 *should* cover all our expenses, possibly (hopefully!) with some left over.

Checking #1 is for our recurring/fixed expenses.  This includes rent, insurance (auto, pet, life), Tom’s commute costs, utilities, subscription services, the kids’ classes/lessons, etc.  Everything that is paid monthly or yearly.  The yearly items were divided by 12 and added to the monthly amount.

Checking #2 is for our “discretionary” spending.  This includes groceries, my gas, clothes, shoes, household, home school supplies, outings, treats, eating out, entertainment, etc.  I chose to give myself a disbursement on the 1st and again on the 15th, since I knew it’d be easier to budget it all out if I only had to think ahead two weeks at a time.
I really don’t want to overspend and run out of money when we need groceries, for example.  So the “discretionary” amount is divided by two, and transferred twice a month.I like this plan because I can now pay the entire month’s fixed bills at the beginning of the month, without having to juggle them around paydays (which aren’t fixed.
I *love* not worrying about due dates!!  I also don’t have to worry that if we overspend on discretionary items that we’ll end up strapped when a big bill comes due.  It’s been tough to pay rent, student loans and our electric bill all around the first.  Our largest outlay occurs before the 10th of the month and then from the 15th on, there’s really nothing major due.  This led to overspending (month after month) during the second half of the month, even though it would have been smart to try and carry something over to the new month (I *did* say I’m the dummy!).

The only caveat is that this required “seeding” our first month from our savings account.  It makes me a little nervous to see that savings # fall downward a notable amount, but I know that the majority of the next 4 paychecks will be going into savings, so by the end of this month, it should be back to where we started…and by the end of next month it should show more growth.

I use YNAB to manage everything and this concept is technically known as the “buffer” in that system.  The idea of YNAB is that the money that you make this month will pay next month’s bills, but this assumes you’re using last month’s money to pay this month’s.  That’s your “buffer.”   It can take months to set aside a full month’s income to create your buffer, unless you tap into your savings account.   If you check the forums there, you’ll see that there’s a constant discussion about whether or not it’s safe to fund your “buffer” with savings.  Most people agree it’s safe, but only if you commit to putting future income back into savings once you’re living from your buffer. Of course this isn’t an option for people who haven’t yet established savings.  No shame in that, but it should be a goal.  I wouldn’t tap into an “emergency fund” to seed a buffer, but since we’ve managed to save beyond that since we began saving 1/3 of our income, I felt safe tapping that account to seed our new plan.