If I could only recommend one financial strategy to people for the rest of my life, it would be what I’m going to describe in this blog entry (next to saving for retirement, of course!). Be prepared to have your mind blown by the simplicity and sheer genius of what I’m about to describe.
First, let me tell you how I got to the point of needing to implement this….
I was so excited to graduate college and ditch the whole “poor college student” thing. Right after I received a full-time job offer during my senior year, I bought a brand new car and started spending money like I was already making a full-time income. Ok, who am I kidding? I was spending outside my means before that even though I was footing the bill for a private college. I already expected to borrow $50k toward my education so I didn’t see the point in “stretching myself too thin” by contributing what I had leftover after rent to my tuition. I had time to pay it off later so why not enjoy a few new outfits, right?
I continued to live without a budget for a couple more years after college until I decided to buy a townhome (it was 2006, everyone was doing it). I quickly realized I was living beyond my means. You would think the credit card balance, constant stress of money, and overdraft fees would have clued me into this earlier. I needed to lock down my spending… quickly. Colleen’s sister, Laura, told me how she managed her money and I thought I’d give it a try.
I have two checking accounts – one for fixed bills and one for variable expenses (gas, groceries, eating out, and all that good stuff). First, I calculated what I need to contribute from each paycheck to cover my monthly bills. Then, I set up my paycheck to auto-deposit that into my bills checking account and the rest goes into my spending account. It. is. that. simple.
Why do I swear by this? I never have to worry about whether I have enough in my account to cover my bills and I always know what I have left to spend for the week because they are separate accounts. This small change caused a large improvement in my stress level and spending habits. My bills auto-pay from my bills checking account, the money to cover them is automatically deposited from every paycheck, and I check in every week to make sure it is all going smoothly (and sometimes I only check in every month!).
Happy budget management! (tips on how you manage your budget are encouraged in the comment section!)