How do you budget? I think I’ve gone through every possible version over many years. I’ve done envelope systems, cash only, debit card only, weekly, bi-weekly and monthly budgets. I was constantly tweaking or completely restarting until I started bucket budgeting. This particular version of money management works for me now and for the past two years. HOWEVER! I love trying different tweaks, so if you have something that works for you, let me know in the comments section!
So here’s the monthly drill – I set up a simple Excel spreadsheet with my categories of expenses and income. Then the automation and bucket parts kick in.
I am terrible at being motivated every single day. I can do great for a week, a month, or even sometimes a little longer. But eventually life gets in the way and transferring money, keeping track of expenses or even paying a bill gets overlooked in the insanity of the moment. Solution? Automate.
To begin, I set every single monthly recurring bill on autopay. Electric, gas, gym dues, mortgage… you get the idea. Because I tend to trip-up at unexpected times, I set up a monthly budget versus a weekly or bi-weekly. In the beginning, I would be a month ahead in expenses in order to cover this. Over time I moved that month ahead into my emergency account and started to take advantage of a VISA & Discover card.
I know, I know. People who use credit cards or pay electronically are more likely to pay more over time. A recent study came out that says if you track spending, it has the same effect as using cash. But before I knew that, I was to the point of not caring. I was massively overspending by dropping the ball during times of chaos, and the chaos was showing up often enough to make the late fees and financial mistakes significant to our financial situation. So the thought of overpaying a bit was ok in my perspective. I went into the experiment with this issue in mind and quickly added EEBA into the mix to solve the overpaying problem.
I pretend at the beginning of every month that I have the estimated income already in the bank account and I budget accordingly. Our income is fairly steady, but I under-budget a bit just to be sure. Then I break out the credit cards. Everything other than the mortgage is paid for on autopay by a credit card. At the end of the month I pay one lump sum from the income we have accumulated over the time period.
Why credit cards? A couple of reasons. The first reason is convenience. Cash can be a hassle. I did envelopes and cash for years. It was a pain in my opinion. If we forgot an envelope, it was often a case of using the debit card, then depositing the cash to cover the cost or driving twenty minutes home for the envelope. The other problem with cash is two users of the envelopes. I couldn’t just ask my husband to run to the store for milk on the way home from work because he didn’t have the correct envelope. If we set up two, one would always run down and need funds from the other and access to the other envelope would be a hassle. I am all about removing bottlenecks from personal finance.
The second reason for using credit cards is two-fold. Security and rewards. If I can lengthen the distance from my spending to my bank account, fraud is easier to deal with in the short-run. If my debit card number is stolen, my bank account can be cleared out. If I need to have access to cash immediately, I have an urgent issue on my hands. If my credit card number is stolen, I can easily use the debit card to cover expenses until the fraud is handled. My husband was a fraud detective for a few years and this was his recommended tactic.
While his reasoning was practical, I liked the idea of the rewards. I use a Disney Visa card to pay for an every three year vacation to Disneyland. I chose this particular card because a Disney vacation is something we are going to do every few years anyways. By using the card, we eliminate an inevitable vacation expense. With a large family, airline miles were not going to be practical. It would easily take me over five years to accumulate enough miles. The Disney card allows me to receive a reward in a timely manner, and it is something we would do anyways. Since I pay the entire balance at the end of every month, I have never been charged interest to use their money while earning their rewards.
The last part of the bucket budgeting is the use of several bank accounts. If you can use USAA, I HIGHLY recommend them. I have tons of accounts through them, and I am never charged for them. These are the “buckets”. Instead of paying a car payment, I pay a vehicle payment to myself via a specific account at USAA. A travel fund (not just Disney!) payment goes into another account and a birthday/Christmas fund is also allocated funds each month. Short term savings, long term savings, emergency, uniform allowance and investment savings (primarily for real estate) are also separate accounts with their own auto-pays.
All of the accounts at USAA are set up to pay out of our local credit union checking account at the end of the month. So…. Income comes in during the month, expenses are accumulated on the credit card throughout the month, and at the end of the month the credit card is paid by auto bill-pay and the “buckets” are auto-drafted. Whatever is left goes into a windfall percentage to determine its placement (another post, another time).
That’s what works for me! How about you? What is your preferred version of budgeting… well, hassle-free budgeting…?