My new budgeting system

[kaleida]

I really like my new budgeting system and I just want to share it!
I wanted a system that will help me visualize 2 things:
A) leftover money = fun money, I'm not saving my leftovers, I'm saving first and then leftovers become fun money.
B) how much fun money I have at any given time. All I have to do it look at my checking account balance, that's my fun money.

Here it is...6 steps total, the first 5 steps are all on auto-pilot with auto-pay:
1. direct deposit all of my paycheck into my savings account
2. auto-pay as many bills as possible on my credit card...netflix, gym, etc. I also use my credit card for boring non-fun necessities like gas, groceries, doctor visits, pet supplies, etc.
3. auto-pay the full balance of my credit card from savings account every month
4. auto-pay rent from savings account
5. auto-pay my Vanguard investment account (a fixed amount every month)

...so all of my "necessary" and "boring" spending is taken care of through the savings account.
Then when I'm finished paying all of the month's bills, there is ONE manual step....

6. Leave 1 month of expenses in the savings account and transfer anything above that to my checking account for fun.

That way my checking account is 100% fun money and I know exactly how much fun money I have!

Isn't it nice?

When it's time to pay the next month's bills I have the 1 month of expenses left over from the last month, plus a few new paychecks, so there is some padding in case there's a month with higher than usual expenses.

I like it so far....

[twest]

Glad you shared. I think it sounds like a great way to do things. My husband and I have done something similar and really like it too. It makes you feel good and secure.

I do like your idea of the savings account being the main account and then just like you said in the checking you can do whatever. Great post.

[YLTL_Dan]

That sounds like a pretty good way to do it. My only concern would be with all of your auto-pays. I don't auto-pay my credit cards or mortgage because I like to feel the pain . It helps me realize how much we're spending each month.

[MoneyTips4U]

"Fun money" sounds like a great way to help out with budgeting! I guess I could look at the money in my checking as "fun money", and just keep my savings account to the regular, old stuff.

[GrimJack]

Interesting but seems more logical to budget your 'fun' and how can you make so many withdrawals from a savings account? I am pretty sure that there is a limit (my credit union limits my withdrawals to 3 or 4 per month) - possibly a legal limit otherwise how is it a savings account and not just a checking account with a funny name?

[MakeAStash]

To my knowledge, autopay of a credit card balance may make it impossible to dispute a billing error within that balance.

[humandraydel]

I would recommend 1 modification to your plan: also budget a specific amount for fun money each month - maybe $200. If the amount you WOULD transfer to checking this month is $300, only transfer the $200, and save the remaining $100.

[phantom]

I think this sounds like a great way to do things. Any system that lets you automate so much sounds good to me. Personally, I'd prefer to have a small budget for fun and let any excess turn into extra savings. But, I see nothing wrong with using the excess for extra fun. I hope it continues to work well for you.

[feh]

I would recommend 1 modification to your plan: also budget a specific amount for fun money each month - maybe $200. If the amount you WOULD transfer to checking this month is $300, only transfer the $200, and save the remaining $100.

I agree completely. Budget an amount for entertainment/wants.

Your system is very good in the sense that it takes care of savings first, but could still lead to frivolous spending, if your increase in income outpaces your cost of living.

[Petunia 100]

Is there another savings account someplace? If not, it sounds as though 1 month of expenses is your entire emergency fund? I suggest you try to increase that.

Glad your system is working for you.

[kaleida]

So many replies and questions! I will try to answer...

Is there another savings account someplace? If not, it sounds as though 1 month of expenses is your entire emergency fund? I suggest you try to increase that.
Glad your system is working for you.

There is definitely a separate emergency fund - that's step 5 (auto-pay my Vanguard investment account a fixed amount every month)

My emergency fund is $60,000 and growing quickly - I'm adding $2,000 per month to it. I calculated that amount by looking at the amount that I actually added to my emergency fund in 2012, then I added 10% to challenge myself a bit, then divided by 12 to get the monthly amount.

So my savings goal is aggressive, but I think I can do it because I'm very visual and I think this system will help me a lot! I already noticed myself making unconscious changes in my fun money spending, so I can make that checking account balance last longer and get as much joy as possible out of it before it's gone. I'm very visual like that!

That sounds like a pretty good way to do it. My only concern would be with all of your auto-pays. I don't auto-pay my credit cards or mortgage because I like to feel the pain . It helps me realize how much we're spending each month.

I am the opposite, I love auto-pays!! Partly because it guarantees 100% on-time payments on my credit report - and partly because I'm lazy. (What can I say, I'm a software developer... good software developers are chronically lazy! We hate manual tasks! We like to automate all boring tasks so we can spend time on something more interesting!)

If your mortgage payment is painful, do you have the option of downsizing to a smaller place? I think the key is to live a bit below your means so that the necessities aren't painful at all. I'm living way below my means in the apartment situation - my rent is only about 8% of my income. My grocery bill used to be painful in the past, so I changed where I buy my groceries (bye bye, Whole Foods - sorry, Whole Foods!) and now it's no longer painful.

Interesting but seems more logical to budget your 'fun' and how can you make so many withdrawals from a savings account? I am pretty sure that there is a limit (my credit union limits my withdrawals to 3 or 4 per month) - possibly a legal limit otherwise how is it a savings account and not just a checking account with a funny name?

Savings accounts allow 6 withdrawals per month by law. I have 5 scheduled withdrawals. But if someone wants to use this system with more than 6 withdrawals, a checking account could work too.

• 1 credit card that I use for a few small bills because it's my oldest account and it helps my credit score to keep it active
• 1 credit card that I use the most often for the gas & grocery rewards
• 1 rent payment
• 1 transfer to Vanguard
• 1 transfer to checking

To my knowledge, autopay of a credit card balance may make it impossible to dispute a billing error within that balance.

Interesting... I didn't know that!

I'm sure I could talk the credit card company out of it if I needed to...I'm very convincing on the phone

Plus the auto-pay thing has its own benefits - never paying a single penny in credit card interest, and no risk of missing a payment. The only missed payment on my entire 10-year credit history is because I forgot to make a manual payment. Had plenty of money, just forgot to sign to the website and do it. So I'm not going to make that mistake again.

I think this sounds like a great way to do things. Any system that lets you automate so much sounds good to me. Personally, I'd prefer to have a small budget for fun and let any excess turn into extra savings. But, I see nothing wrong with using the excess for extra fun. I hope it continues to work well for you.

I agree completely. Budget an amount for entertainment/wants.
Your system is very good in the sense that it takes care of savings first, but could still lead to frivolous spending, if your increase in income outpaces your cost of living.

I think that budgeting a fixed amount for fun leads to some entitlement issues (for me anyway). Last year I budgeted about a fixed amount for fun and I felt like I was ENTITLED to spend that money regardless of what else came up.

With this new system, I only get to spend the budgetary "leftovers" for fun. Less leftovers = less fun. Maybe in the average month I do get to spend the usual amount on fun. But then maybe an unexpected $200 car repair comes up - then I have $200 less when I calculate leftovers, and my fun money is reduced. That's a good thing. It means that I will ALWAYS meet my savings goal. Every single month.

I think I have set a good balance between savings vs. fun in this budget. My savings goal is aggressive (adding $2000 per month to my Vanguard account - 10% more than I actually saved last year). So I feel no guilt in using 100% of the leftovers for fun ... it's very motivating to me to know that will be my reward for nailing my savings goal!

Saving first and spending the leftovers is a basically whole different mindset compared to spending first and saving the leftovers ... I think it will work very well for me.

[ActYourWage]

When it's time to pay the next month's bills I have the 1 month of expenses left over from the last month, plus a few new paychecks, so there is some padding in case there's a month with higher than usual expenses.

Having 1 month worth of expenses left over is a great way to utilize a spending plan. Sounds like you're doing great!

[Gina23]

That sounds like a pretty good way to do it. My only concern would be with all of your auto-pays. I don't auto-pay my credit cards or mortgage because I like to feel the pain . It helps me realize how much we're spending each month.

Ha... so do we! Funny to know there are others out there like this.

[kaleida]

Ha... so do we! Funny to know there are others out there like this.

I think it makes more sense to downsize to the point where necessities aren't painful at all!

[gostumpy]

Sound advice I heard many moons ago, only automate GOOD behavior, like savings & retirement