Making things efficient is a favorite pastime of mine. I've learned that the more work you do up front to set up a system (any system), the less repetitive work you do on the back end. I like our cash flow system because now I don't have any real work to do each month.
We started this system in increments. We didn't try to do it all at once so I wasn't overwhelmed. If you want to replicate it, I am including step by step instructions. It will take time to set it up, but once it's set up, it should take only a few minutes to check on it — unlike my full 20-minute look-see. I look at my accounts every month at the beginning to make sure I didn't typo something or forget something. Then I randomly check the accounts throughout the month to make sure no one cloned our debit card.
This will be a very long post. I hate when people write Part I and Part II posts. Then I have to search for the rest of it and I lose my train of thought. So it's here all in one place for everyone.
Monthly Bill = A bill that occurs every month. It does not have to have the same amount every month. It just has to occur each month. For example, the light bill.
Irregular Bill = A bill that does not occur every month. For example, a birthday gift.
Our Automatic System
In the beginning we had two checking accounts. One was labeled Bills and the other was Spending Money. We used automatic bill pay for what we could and then we used our debit cards for everything else. All monies were deposited into Bills. All Bills were paid on the 1st. On the 2nd, remaining monies were moved to the Spending Money account. All monies in the Spending Money account were ours to spend. Once the money ran out, it ran out. No more spending.
Then we found Rewards Credit cards. Now instead of paying each vendor directly, each vendor that will charge our Rewards Credit card at no additional cost does so. Our automatic bill pay now pays the credit card instead of the vendor.
Step 1: Find a bank or credit union that doesn't charge a monthly fee, allows you to have multiple accounts, allows you to apply nicknames to each account, and has a user friendly internet access. We use University Federal Credit Union. (I do not get paid if you click on the link. They are a fantastic credit union with sister branches all over the United States. I don't live in Austin, Tx where they are based and I've never had a problem doing any banking transactions at sister branches.)
Step 2: Open two checking accounts and two savings accounts at the same institution.
Step 3: Label the first checking account Bills Checking.
Label the first savings account Bills Savings.
Label the second checking account Spending Money Checking.
Label the second savings account Future Spending Money (more on this later).
Step 4: Change paychecks so that they're deposited into the Bills Checking
Our paychecks and all other income sources are deposited into our Bills account. For example, in January all incoming funds go into the Bills account. Then we set up automatic bill pay to pay what bills we could on the 1st of the following month. So in our example, January 3 there is no money in our Bills account. January 15 and 31, paychecks are deposited in the Bills account. On February 1, all bills get paid. February 2, remaining funds get moved to the Spending Money account, which is ours to spend freely on whatever we want.
Step 5: Get out all of your bills if you have any paper bills. If you only view bills on line go to Step 6. Don't have your paper bills and don't know what they are? Get a box or folder. Put it in a particular place that no one is allowed to move on pain of death. If you like paper copies, then the next time you get a bill in the mail, pay it and put it in the box/folder. If you get an emailed bill (some companies don't send paper bills anymore), pay it and print it and put it in the box/folder. If you prefer digital copies, put a copy of your email in your notes app and take a picture of the paper bill as you receive them. Do this for 4 weeks. Then you will have all of your bills in one place.
To get started I thought, Food, Shelter, Transportation, Fun. I stuck medical related items in my Food category. I can make just about anything fit in these four categories. So if you don't want to wait a month to figure out what your bills are, then write down any and all bills you can think of under these four headings. For example:
Food/Medical
OTC (over the counter) meds (cough drops, etc.)
first aid
prescriptions
groceries
social events where you will bring food such as office parties, school parties, soccer snacks
medical premiums
dental copays
doc copays
eye doc copays
glasses/contacts and solution
fluoride
vitamins
Transportation
Bus/train/subway passes
Uber / Lift / taxi costs
car payment
car insurance
inspection
registration
taxes
toll roads
Shelter
mortgage/ rent
insurance
HOA
property taxes
toiletries
Fun
Kids' activities
Restaurants
Movies
Theme parks
Vactions
Step 6: Set up your Payees
- Get out a blank piece of paper and pencil or open your Evernote app, etc. (This is so you can write down the amount you pay each month for each bill.)
- Open your Bills Checking account on line.
- Access your institution's Bill Pay center.
- You need to set up each company you pay. UFCU calls these Payees. Enter your first bill's company info (name, address, account #, etc.). Save.
- Write down the amount of the bill on a piece of paper or in your note app.
- Repeat until all of the Payees are set up.
- NOTE: If you don't have time to do all of your bills at once or if you are just overwhelmed, then each time you pay a bill, set up the Payee for that one bill. Repeat until all Payees that can be paid in automatic bill pay are set up.
Note: In order to pay all of our bills on the 1st we had to save up enough money to pay them all at the same time.
By now you should have a list of your bills and the amount you pay each month.
Step 7: Notate which bills have a different payment amount each month. For example, our light bill changes each month but our RV payment does not.
Step 8:
- For bills that differ each month you will need your average monthly bill.
- Figure out the average monthly amount for the bills that differ each month:
- You can guesstimate (which I don't recommend but understand if you are overwhelmed but want to get started) or look up the prior 12 month's amounts and divide by 12. You can call the company and they will give this to you over the phone as well.
- Your company may offer Balanced Billing. If so ask to be set up. If the company does not offer Balanced Billing, down further below explains how we solved this issue. (Balanced Billing is a program that allows you to pay the same each month. This monthly amount changes once a year to accommodate any usage and rate changes.)
- Write down in your note app or on your paper what the average is for each bill that is not the same.
Step 9: Add up the amount of your monthly bills. Use the average amount (not the current month's amount) for the bills whose amount changes each month (utilities for example). Don't forget to include the bills that cannot be paid through automatic bill pay (like the lawn guy).
Here is our total:
Here is our total:
| Expenses | |||
| Bill Pay | 2270 | ||
| Spending | 1676 | ||
| 3945 | |||
Here is our breakdown. In another post I'll explain each line item. For now I just wanted to show our spending to help get you started.
| Spending Money | |||
| Allowance | 300 | ||
| Medical | 371 | ||
| Housing | 938 | ||
| Cars | 67 | ||
| 1676 | |||
| Maint / oil changes | 35 | ||
| insp / registration | 20 | ||
| toll road | 12 | ||
| 67 | |||
| Medical / Food | |||
| Eyes | 34 | ||
| Vitamins | 60 | ||
| Fluoride | 8.667 | ||
| Extra Food week | 33 | ||
| OTC/meds | 20 | ||
| ACA | |||
| 156 | |||
| HOA | 71 | ||
| Dog | 50 | ||
| Cat | 40 | ||
| Filters | 20 | ||
| Prop Taxes | 396 | ||
| NaD Jr.'s Clothing | 10 | ||
| NaD Jr.'s haircut | 19 | ||
| Toiletries | 40 | ||
| house/car ins | 292 | ||
| 938 | |||
| Bill Pay | |||
| RV | 366 | ||
| Mrs. NaD's Life ins | 27 | ||
| Gas | 33 | ||
| Water | 65 | ||
| Amx | 400 | food | |
| Amx | 250 | gasoline | |
| Citi cc | 135 | Electric | |
| Citi cc | 77 | Internet | |
| Citi cc | 168 | Phones | |
| Citi cc | 212 | Life Ins | |
| Citi cc | 75 | RV storage | |
| Citi cc | 215 | ACA | |
| Citi cc | 10.61 | Lightroom | |
| Citi cc | 16 | Tivo | |
| Mr. NaD's Life Ins | 149 | ||
| ING | 71 | gifts | |
| 2,270 | |||
Now you know the amount you spend on monthly bills.
Step 10: Save up this amount. Keep this money in the Bills Savings until you have enough to equal the amount you need to pay all of your bills at the same time.
Our total above is $3945. When we were starting out, if we would put $100 or $5 or whatever we had in the Bills Savings. As soon as we had $3945, we got our plan started the very next month.
Our total above is $3945. When we were starting out, if we would put $100 or $5 or whatever we had in the Bills Savings. As soon as we had $3945, we got our plan started the very next month.
Now that your Payees are set up and you have an amount saved that equals your monthly bills amount, it's time to set up the bill payments.
Step 11: In your institution's Bill Pay Center, create your first payment.
- Go to the first bill on your paper/in your note app.
- Date: Set the date for the 1st of the month. (or whatever date you choose)
- NOTE: It doesn't matter when a bill is due. It still gets paid on the 1st, for example.
- NOTE: If paying on the 1st made a bill late because it was due on the 1st and the payment couldn't reach the company in time, we just paid a month in advance.
- NOTE: For example, back when we had a mortgage, it was due on the 1st and was late on the 6th. Most of the time the mortgage company received the payment by the 5th so everything was fine. However, every three month's or so (due to a holiday or there being a weekend during this period) our payment didn't reach the mortgage company until the 6th, creating a late fee. So we just sucked it up and paid two month's mortgage payments at once. That way when the mortgage co didn't get the payment till the 6th, it wasn't late, it was three weeks' early.
- Recurring. Make sure you're setting up the payment for indefinitely vs. a one time payment.
- Amount: Enter the amount.
- If it is a bill whose amount changes, put the average amount not the current month's bill.
- When you called your company, did it offer balanced billing? If so, put that amount in. If not, see Step 12.
- Repeat for all bills.
Save.
You can set up bill pay so that it is a one time payment or the payment can recur automatically forever or recur automatically until the date you tell it to stop.
Step 12: Bills whose amounts change each month and the company doesn't offer balanced billing. This part is confusing so if your utilities offer balanced billing and/or if they don't change that much skip this section.
- The easy way: Paying a lump sum up front. If you can't afford to throw a few hundred dollars at a bill to get things started skip down to the next part of this section.
- Some months you will be paying a lower amount than others. If you start this process in a month that is higher than others (for example your light bill in the summer if you live in a hot climate or gas bill in the winter if you live in a cold climate), the easiest way to work this system is to make a one time payment of $300 - $400+ (depending on the amount of your bill). Then you can start paying your average monthly payment immediately.
- For example, if the current month is June, and you have the money, pay $400 to the electric company. Set up your recurring automatic bill pay for July for the average amount.
- Had we done it this way we would have paid $400 at the beginning of August when we moved in. Then the first bill pay in September would be the $135 a month, which is our average. Since our July and August bills seem to be about $170 and our September, October, bills are about $150, we would have had enough of a credit balance, or cushion as I call it, to get us through. Then during the winter months when the bill is only about $80, we would have built the cushion up again. We would probably have had a lot of money left over, but since the point is to not have to change anything for months at a time, I am more than willing to let go of a few hundred dollars to ease the stress.
- NOTE: My electric company sends me a weekly summary of kilowatts used via email. I just glance at the amount. It doesn't vary normally more than a few dollars from week to week. This doesn't take much time.
- Skip the rest of this section if you can afford to pay a lump sum up front.
- Workaround for not using the lump sum method. Not everyone has a few hundred dollars lying around so this is your workaround.
- This only has to be done the first year. Every year after that your balanced bill amount will be fine.
- Make sure the monthly amount is enough: Write down all 12 month's prior amounts. Divide by 12. That's your monthly amount. However, you have to make sure that each monthly amount will suffice for the next month. For example, our monthly electric bill averages out to be $135 a month. In the summer it goes up to $170 and in December it's about $80. If I'm starting in June, making a $135 paying in July will not be enough to cover the July bill.
- So figure out if you're in a lesser or more expensive month.
- Less Expensive Month - If I pay $135 in December I'm paying over our normal $80 payment for December, which is good because this overage will accumulate each month so that in June (when our payment is $150) it will balance out.
- Go ahead and put your average amount in bill pay when you set it up.
- Figure out which month will have a significantly higher amount. In that month double check your bill to be sure your accumulated amount will get you through the more expensive months.
- For example, if it is December and I pay $135 for the light bill for the first time, then in April when it usually has a few warm weeks I'll double check the balance to make sure paying the current payment will allow us to get through the next three or four months. If not, I'll do a one time payment for the amount of the shortage.
- December Paid $135. Bill was $80. $55 Overage
- January Paid $135. Bill was $80. $55 Overage
- February Paid $135. Bill was $80. $55 Overage
- March Paid $135. Bill was $80. $55 Overage
- April Paid $135. Bill was $90. $45 Overage. Total overage is now $265
- May $110 expected. $25 Overage. Total overage is $290.
- June $150 expected. Payment $135 = $15 shortage to be taken from $290 = $275 left.
- July $175 expected. Payment $135 = $40 to be taken from $275 = $230 left.
- August $180 expected. Payment $135 = $45 to be taken from $230 = $185 left.
- September $175 expected. Payment $135 = $40 to be taken from $185 = $140 left.
- So in our example above I'm good through the summer months so I'm not going to check it again till September. Even if I'm way off the electric company won't charge a late fee when you've mostly paid your bill. If I'm short a little in August and September, I won't be charged a late fee till October.
- More Expensive Month - So if you are setting up the system in a more expensive month (like June for your electric bill), you will need to set up a one time bill pay for each of the next few months.
- Then in the months where the bill will be lower (our bill goes down to $125 or so in October), start your recurring bill pay.
- If I were to start this bill pay process in a more expensive month like June, paying $135 would not be enough for July's payment.
- For example, if it's June right now, I'll set up separate/one time payments for July, August, and September's bills (we live in Tx so the September bill will not be that much lower than August's bill.) I will set up the recurring bill pay to start in October, which is significantly lower than August's bill.
- To further explain. Last year's July bill was $170 so I'll make a one time payment set for July 1st for $180 in case we use more electricity or rates will rise. Then I'll make a one time payment for August for $200 in case we use more or rates will rise. Then I'll make a one time payment for September for $180. I will tell the bill pay to start the recurring $135 payment starting in October since last year's October bill was $125.
- I will do this in one sitting. I don't want to have to look at the electric bill until September (as stated above I normally look at my usage weekly but I still don't want to have to look at the bill in case I get super busy. Plus it's one thing to glance at the bill. It's another thing to have to go through the trouble of remembering the total and then paying the bill).
- Repeat until all of your bills are set up.
Step 13: Payments by check
If we had a regular expense that could only be paid by check, I wrote out all the checks in advance at the beginning of the calendar year.
For our lawn guy, he charged $25 for each cutting. We looked at the calendar and counted out 16 weeks that would need a lawn cutting (most likely. We didn't know for sure as the weather played a part in how fast the grass grew. The lawn needs cutting every week in the summer and every two weeks in September, etc.) We filled in 16 checks and put each check in its own envelope. When it was a week when the lawn guys would be coming, I would just grab an envelope and tape it on the sliding glass door in the back so the guys could pick up the check.
Time Saving Tip: There is a kitchen drawer not too far from the back yard sliding glass door. I bought an extra tape dispenser to keep next to the envelopes in this kitchen drawer. I didn't want to have to go looking for the tape every time it was time to put out the payment. It saved time having an extra tape dispenser right next to my envelopes. Having the checks written and in an envelope lessened the time each month I spent on the bills. It was so much less stress this way.
I waited to implement this system till I was sure I liked the lawn guy.
For our lawn guy, he charged $25 for each cutting. We looked at the calendar and counted out 16 weeks that would need a lawn cutting (most likely. We didn't know for sure as the weather played a part in how fast the grass grew. The lawn needs cutting every week in the summer and every two weeks in September, etc.) We filled in 16 checks and put each check in its own envelope. When it was a week when the lawn guys would be coming, I would just grab an envelope and tape it on the sliding glass door in the back so the guys could pick up the check.
Time Saving Tip: There is a kitchen drawer not too far from the back yard sliding glass door. I bought an extra tape dispenser to keep next to the envelopes in this kitchen drawer. I didn't want to have to go looking for the tape every time it was time to put out the payment. It saved time having an extra tape dispenser right next to my envelopes. Having the checks written and in an envelope lessened the time each month I spent on the bills. It was so much less stress this way.
I waited to implement this system till I was sure I liked the lawn guy.
To recap so far, paychecks are being deposited into the Bills Checking account. Your checks are written for the next 6 months or so. On the 1st, all bills get paid. Now we're ready to set up your transfers.
Automatic Transfers. We set up automatic transfers to move the remaining money (after bills were paid) to the Spending Money account on the 2nd. Doing so zeros out the Bills Checking account so that when the next checks get deposited, we don't mix up the money. So in our example, on February 2, all monies get moved to the Spending account. Once the money runs out, no more spending.
Let's use some numbers to better explain. Say you get paid $3000 in January total. Your two $1500 checks are deposited into the Bills account. On February 1, you have $2500 in bills automatically paid by your bank. On February 2, your bank's automatic transfer system moves the remainder of your money ($500 in this case) to your Spending Money account. You now have $500 to spend on food, gas, fun for the rest of the month. Once it's gone, it's gone.
The nice thing is that you don't need to worry that you won't have enough money for your bills if you spend your $500. The money never mixes. Before this system, if I had money in the bank I didn't have the luxury of just spending it without thought. I had to stop and figure out, okay. What bill is coming up? Will I have enough for that bill right now? Can I spend this money? When do I get paid? I have $50 and the water bill is $35. When is it due? OMG. In three days. I'd better pay it now. It will never get there in time in the mail. Guess I'll have to stop at the grocery store to pay the bill in person before I go out tonight with everyone. That leaves $15 for dinner tonight. That's not enough. Oh well, I'll just pay the difference with the credit card. Then the next day: Shoot. I forgot the light bill is also due in three days. Guess that will be late.
Irregular expenses. My new automatic system worked great for two months. Then we ran into an irregular expense. It was the middle of the month and I only had enough money left to buy what gas and food I needed through the end of the month. I didn't have enough money for the oil change that should have happened 400 miles ago. Can you tell I have ADD? I was so very scattered.
So I created a calendar of Irregular Bills, which are just expenses I will incur in the future. They are not emergencies. They are upcoming expenses. I tried to think of any and all purchases that don't happen once a month. I wrote down everything I could think of.
I came up with birthdays that require a gift, car registration/ maintenance, Dad's/ Mother's day etc., vet/ doctor/ dentist months, what month to buy my vitamins in bulk, etc. My calendar also lists holiday expenses that I always forget like an Easter outfit and stamps for Christmas cards. I broadly categorized them as gifts (holiday clothing and other expenses like Halloween candy are gifts in a way), and maintenance: car maintenance, house maintenance, medical (body maintenance), and pet maintenance.
Then I looked at last year's irregular bills and added 10%. If our contact lenses were $120 last year I just added another $12 and called it at $132. Then I repeated for each irregular item. There is no rhyme or reason to the choosing of 10%. I guess 10% was a figure I could calculate in my head and made the process easier. I guess it also assured me that most things wouldn't be 10% higher so if something did go crazily higher like 25% more, I would still have a high enough cushion to not be caught shorthanded.
If I didn't have last year's bill on an item, I just made a few calls. For example, if I didn't know the car's registration price I would go on line to look it up. If I didn't know the cost to get the car inspected, I just called around a few places to see what they charged.
Then I added up all the Irregular / Future Expenses and divided by 12 months. Each month I transfer this amount into the Spending Money Savings so it's not in the Spending Money Checking. If I were to leave the money that is to be set aside for the Irregular Bills in the Checking account we may accidentally spend it. Whatever is in the checking is ours to spend. Once the checking hits zero, we are done spending.
| Jan | Feb | March | April | |||||||
| 55 | eye exam Mr. | 0 | Valentines Day | 25 | Easter Basket | 72 | registration | |||
| 55 | eye exam Ms. | 240 | filters | 25 | easter clothes | 26 | inspection | |||
| 180 | contacts | 205 | dog vet shots | 3500 | trailer, car, house ins | |||||
| 95 | glasses | |||||||||
| 22 | flouride | |||||||||
| Anniversary | ||||||||||
| 407 | 445 | 3550 | 98 |
In keeping with our example from above let's say all Irregular Bills, aka Future Expenses, add up to $600 a year. Divide that by 12 months and you get $50 a month. So using our example from before, in January $3000 gets deposited into the Bills account. February 1, automatic bill pay pays bills. February 2, automatic transfer moves $50 to Future Expenses Savings and $450 to Spending Money Checking.
Some months don't have an Irregular Bill in them. Some months have 3 Irregular bills. In a month that does incur an Irregular Bill, if possible, we set it up so that the bank automatically moves the money from Spending Money Savings to Spending Money Checking. We know our copays for doctors for example and this won't change so we can set these up automatically. For something like glasses, I manually move the money for the glasses since I don't know exactly how much they will be.
Example: January maybe you have no Irregular Bills. So no transfer needed for that month. But maybe in February you have 3 Irregular Bills totaling an estimated $45. So February's automatic transfer from Future Expenses Savings to Spending Money Checking is $45. You set up a recurring payment (recurs yearly instead of monthly like the monthly bills) to pay the credit card $45.
March's Irregular Bill is $15 for a three-month supply of prescription medicine. So you tell the automatic system that every March, June, September, and December (the prescription renews every three months) it is to transfer $15 from Spending Money Savings to Spending Money Checking, etc. Then set up your recurring bill pay. I set up a yearly bill pay for each month. So one bill pay for each March, one bill pay for each June, each September, and each December.
Then at the beginning of the month you can buy your medicine, gifts, etc. This way the money meant for Irregular Bills is out of the Spending Money Checking so you don't have to keep remembering to not spend $15 so you can pay for your medicine, for example.
Until you set up automatic transfers for Irregular bills you can just incur the expense and manually move the money from savings to checking and then do a one time bill pay.
How Do I Go About Using the Future Expenses Account in the Beginning?
I think I worked overtime and put the extra money into the Future Expenses savings account. I couldn't fully fund all $600 at once, but I was able to come up with $150 in Month 1, and putting in $150 was enough to cover the Irregular Bills/ Future Expenses in Month 2.
Putting all the Future Expenses in a calendar helped to see how much overtime I needed to work so that I would have enough for the upcoming months.
Once and Done
Starting a system like this had bumps for me. For example, February 1, automatic bill pay pays Bills. February 2, automatic transfer moves $50 to Future Expenses Savings and $450 to Spending Money Checking. But uh oh. I only had $50 in savings for Irregular Bills yet I had $200 in Irregular Bills this month. Even if you cut to the bone and eat Ramen and don't go out even once, maybe there is no way can you come up with the additional $150 you need for your Irregular Bills.
This is one reason why I got into debt. I would justify putting it on a credit card because it was a bill after all. It wasn't like I was going on vacation. But the next month I wouldn't cut back to pay it off. Some months are going to have Irregular Bills that are so much that you simply can't pay for them and your regular bills/spending with just one month's worth of salary. So that's why I had to work extra at first to get this system going.
If you can, work extra, sell something, cut back, etc. Don't stop until you have at least 75% of what you need in your Future Expenses Savings. So in our example, $600 in Irregular Bills total for the year x 75% = $450. Put $450 in your Future Expenses Savings as soon as you can. This should let you have enough so that you're not short as you first start out. Once your Future Expenses Savings is properly funded, you can start putting in your monthly average of $50.
Even better though is to look at your calendar. What is the month with the highest amount? For us at the time it was Christmas, in which we needed $460, let's say. As long as the account has $460 to start, you know for sure you're covered. At this point you can start putting in your monthly average of $50.
Funding the Irregular Bills Account Little by Little
Another way to get started using a Future Expenses Fund is to figure out what next month's Irregular Bills are. Let's say it's $15 for your prescription. You work extra/ sell something / cut back/ etc. to get the money you need to pay for the prescription in full.
Your prescription was $15 for a three-month supply. This means you will spend $60 total for the year. Divide this by 12 months and you get that you need to put $5 away each month into your Future Expense Savings.
- So January you have no Irregular Expense.
- January you deposit $3000 from paychecks.
- January you see that February 10 you need to pick up your $15 prescription.
- You work extra and put $15 in your Future Expenses Savings so that you don't accidentally spend it in January.
- February 1, automatic bill pay pays $2500 in Bills.
- February 2, automatic transfer moves $5 to Spending Money Savings and $495 to Spending Money Checking.
- February 3 you think, what Irregular Bill do I need to pay for in March? Oh, yeah. Most likely I'll hit enough miles to warrant an oil change at $25 and I'll need $5 to contribute to So-and-So's going away party at work. Total extra needed: $30
- You work extra/ sell something / cut back/ etc. to get the $30 for March.
- $30 / 12 months = $2.50.
- Add this to the $5 from last month and now your new Irregular Bills amount is $7.50 a month. So....
- March 1, automatic bill pay pays $2500 in Bills.
- March 2, automatic transfer moves $7.50 to Spending Money Savings and $492.50 to Spending Money Checking.
- March 3 you think, what Irregular Bill do I need to pay for in April? Whoa. $200.
- NOTE: I can't postpone these expenses. I can only cut back so far and work so much overtime. I have nothing more to sell. I can only come up with $150. Well, maybe for now you'll need to put that $50 on the credit card. I don't like adding to debt, but this is about setting up a system so that you don't keep adding to the debt on a regular basis. Setting up this system gets you into new habits that in the future will prevent you from adding to you debt load. We set up this system even before attacking our debt. We knew that if we didn't somehow change our habits we would never get out of debt. Or if we did get out of debt, we would just go back into debt. We wanted to take control of our money. This system gave us that control.
- NOTE: If you can work extra in March to get $150, then in April you can make at least almost that much. Think to yourself, in May I'll earn $150, I'll Subtract May's Irregular Bills and apply the difference to the credit card.
- You work extra/ sell something / cut back/ etc. to get the $150 for April.
- $200 / 12 months = $16.67
- Add this to the $7.50 from last month and now you know you need to send $24.17 to Future Expenses Savings in April and $475.83 to Spending Money Checking.
By December you should finally reach $50 a month being sent to Irregular Bills so there will be no further need to work extra to fund the Irregular Bills fund.
So to recap, our bills get paid on the 1st. On the 2nd our remaining money gets moved to the Spending Checking and Savings Accounts. We used our debit card on the Spending Checking account for all expenses that did not require a check. Whatever is in the Spending Checking is ours to spend. When the Spending Checking ran out of money, there was nothing more so we stopped spending.
So to recap, our bills get paid on the 1st. On the 2nd our remaining money gets moved to the Spending Checking and Savings Accounts. We used our debit card on the Spending Checking account for all expenses that did not require a check. Whatever is in the Spending Checking is ours to spend. When the Spending Checking ran out of money, there was nothing more so we stopped spending.
How Our System Works Now that We Have Rewards Credit Cards
I called each and every Bill we have. I asked if there is a fee if I allow them to take money from our credit card instead of me sending them money. Some said yes. I asked what the fee is. Our rewards card is 2%. If the fee was less than 2% of the average of each month's bill I gave them the credit card number.
For example, our electric bill at the time averaged out to be $125 a month. $125 x .02 = $2.50. If the fee for paying with a credit card was $1, I would go ahead and have them debit the credit card because I would still earn $1.50.
Most companies either had no fee or their fee was way more than 2% of the bill. Right now some of our bills are still being paid normally via automatic bill pay or the Bill is taking their money from my credit card so that we can earn 2%.
Here is an example from our budget sheet. We call it our Dashboard.
| Life ins | 27 | ||
| Gas | 33 | ||
| water | 65 | ||
| Amx | 400 | food | |
| Amx | 250 | gasoline | |
| Citi cc | 135 | Electric | |
| Citi cc | 62 | Internet | |
| Citi cc | 168 | Phones | |
| Citi cc | 212 | life insurance | |
| Citi cc | 75 | RV storage | |
| Citi cc | 215 | ACA | |
| Citi cc | 10.61 | Lightroom |
To recap: Our checks are being deposited into the Bills account. Our credit union still pays our bills via automatic bill pay from this account. There aren't as many bills being paid here because some bills take their money directly from our credit card. We do not have to do anything to pay them. They just take the money from the credit card.
We still have a Future Expenses Savings and a Spending Money Checking. On the 1st, the Bills account pays the bills. On the 2nd, remaining money gets moved to the Future Expenses Savings and Spending Money Checking.
Also on the 2nd, $150 gets sent to a third checking account, mine, that does not have Mr. NaD's name on it. On the 2nd, another $150 gets sent to a fourth checking account, Mr. NaD's, that does not have my name on it. This is our allowance. Neither of us has a say in how the other spends it.
Let's give a live example using our actual money. On May 1 our credit union will send out $2255 to places such as our rewards cards, utilities, life insurance, and our RV payment.
NOTE: To clarify, we are not in credit card debt. The money going to the rewards credit card is frontloading the card. This means that we do the following: Normally we spend $400 a month on groceries. So we send $400 to the credit card up front and draw it down as the month progresses. We don't spend $400 on the credit card on groceries and then at the end of the month hope we have enough to pay it off. No. I want to be sure we have enough so I send the money before I spend it. I guess I'm sort of treating the credit card as a bank in a way.
Each month we need to set aside $1461 for Future Expenses. In a future post I will detail exactly what these expenses are but to summarize it's property taxes, HOA fees, doc / vet bills, clothing, toiletries, glasses, gifts, etc.
On May 2 our credit union will send $1461to our Future Expenses Savings account.
On May 2, $150 gets sent to my checking. On May 2, another $150 gets sent to Mr. NaD's checking for our allowance.
So to recap so far:
- Pay checks, etc., are deposited into the Bills Checking account.
- Bills Checking account automatically pays recurring monthly bills on the 1st.
- On the 2nd the bank moves Future Expenses money to Future Expenses Savings and Checking and also pays our Allowances to our respective accounts.
- At this point the Bills Checking account is now zeroed out.
- At random times throughout the month the 2% back Rewards Card is debited by the Bills companies. It doesn't matter when they take this money out because I frontloaded the money (I paid the Rewards card at the beginning of the month).
- At random times during the month we debit the American Express card for gas and groceries. It pays 3% back on gas and 6% back on groceries. Again, we paid the Rewards card in advance so it doesn't matter when in the month the money is debited.
- Our Citi card texts us with a daily balance limit so I know that if we get a text with a positive balance that something is wrong and I'll pull up the account.
Our Monthly Bills are paid in advance to the credit cards. Our Irregular Bills are not because we don't know exactly how much the irregular bill will be. When an Irregular Bill occurs, we use the rewards card if possible to pay it and immediately send the money to the credit card.
For example, we bought glasses and contacts in January. After paying, I sat in the parking lot of the eye doctor and moved money from the Future Expenses Savings account into the Future Expenses Checking account. I set up an automatic bill pay for the next day in the exact amount of each charge.
I try not to leave the store or leave the parking lot unless I've moved money to the Rewards card. When I remember to pay immediately, I feel free. There is nothing hanging over my head to remember.
If you're with friends/family and don't want to delay anyone or have them ask what you're doing or if there is no internet reception, come up with a way to remind yourself to pay this so you don't get into trouble. Since I'm still working on getting it into my head to pay immediately, I set one day a week aside, Mondays, to review the Rewards card for irregular bills and just pay everything right then and there.
Although I don't review the card every day, I get confused if I don't do it often. I'll forget what the charge was for or there are so many that I get overwhelmed. It is so very less stressful if I review the Rewards card regularly. It will be much easier once I remember to pay the bill immediately. But that's me with my ADD and Asperger's. Your stressors may be different.
Paying the exact amount helps me keep track of whether I paid it or not. I still do forget to pay the Rewards cards while I'm at the store but I'm getting better.
Making Bills the Same Every Month
I've tried to make our bills the same each month because it saves time. If our electric bill is always $135, then I can set our automatic bill pay once for the year and not have to look at each month to see what the new bill is. Our old electric company offered balanced billing, which makes each month have the same charge. Once a year they would adjust the price.
Our new electric company doesn't do that so I figured out how much the average is and then just paid the average each month.
For example, when we moved to our house from our condo I didn't know how much our electric bill would be. My sister's bill for a similar sized house was $250 a month. Our house was 20 years newer so I sent $200 as soon as I got my electric company account number. I didn't wait to get the bill before paying it. My first electric company payment was right around the day we moved in so we were essentially a month ahead right off the bat.
When the bill came in it was under $200 for the month of August, which is typically the highest month of the year in Texas. This means every month after that would be less than what August's bill was. With getting settled, working full time and having a toddler, I didn't worry about changing the amount of the electric bill for a long time since I knew I was most likely paying over the actual amount. Don't remember how long it was until I had time to figure out what our average was. Maybe 9 months? I had quite a cushion/credit balance by the time I did get around to checking the balance.
When I went to figure out what should be the average bill, I used August's dollar amount and figured it would be the same for June and July. I had records through the winter of electric expenses and just guesstimated what the amounts would be for the months I didn't have. I figured with our huge credit balance, I wasn't going to worry too much about being wrong about what I thought the yearly average would be. I told automatic bill pay to skip two months (to get rid of most of the cushion) and then the third month I changed the amount to what I had guesstimated the monthly average should be. About six months later I checked my electric bill. I had less of a cushion but still a cushion. By now the cushion was minimal and rates had risen so I used actual data to determine that now we should pay $135 a month. We now build up a credit balance over the winter and burn through it over the summer. Thankfully this is the only bill we've had to do this for.
Let me show you so you can see:
| 2015 | ||
| Feb | 197.67 | |
| Mar | 81.53 | |
| April | 91.19 | |
| May | 108.66 | |
| June | 138.8 | |
| July | 165.14 | |
| Aug | 201.59 | |
| Sept | 171.97 | |
| Oct | 124.81 | |
| Nov | 120.86 | |
| Dec | 113.28 | |
| Jan 2016 | 111.52 | |
| 1627.02 | 135.585 |
(Last February it's so high. Well, remember earlier when I said that our credit balance was so high that we didn't pay our bill for a few months? I wrote the digits backwards when I figured out how many months to not pay the bill. So we owed more in February than normal. See. I'm not perfect. You don't have to be to use this system. It's because I'm not perfect that I made up this system. My propensity for mixing up numbers is high and having bills paid for me lessens mistakes.)
Our gas bill has balanced billing and our water bill has never been more than $1 or $2 different each month. We have a $10 cushion on the water bill as I don't check it every month. I could call, but I'm too lazy. They are frustrating to deal with as they don't even have a website. They only send out a bill via snail mail. They don't have paperless billing and they are the only water company in our area. Water leaks under the house are usually detected when you have a larger than normal water bill. What if we had a water leak and didn't know it? I know I should call and check every month but I've got other things to do.
Retirement
Our retirement is in a fund with 90% stocks and 10% bonds. My employer would adjust it automatically each month to keep it that way. My employer pays the fees so I'm leaving that money in my employer's account now that I've separated from service.
When we start contributing to retirement again, it will be at Vanguard. For now I'll keep the same 90% stocks and 10% bonds in Vanguard. I will just look at the current percentages and decide how to deposit the money. So if stocks are at 91% and bonds are at 9%, I'll look to see how much should go to the bonds fund vs. the stocks to maintain the correct ratio. For example, if contributing all of that month's contributions to bonds will put it back to 90/10 split, I'll do that. I'll set up a spreadsheet calculator and plug the numbers in to see how much to contribute to where. This shouldn't take but a second to figure out how much money to put in what fund. Then I'll send the money each month.
Things of Note:
Just FYI, most bills are paid electronically in our automatic bill pay system. This is called ACH. Some of our vendors do not accept ACH payments so our credit union is forced to send paper checks via snail mail.
For most payments, our vendors receive the money the very next day. It wouldn't necessarily show up the very next day online, but a few days later it would be viewable as paid with the very next day being the date received. I guess they need a few days to put it in their system.
Our checks and tax returns are direct deposited into the Bills account.
Our bills are the same every month so the automatic bill pay sends them out without me having to fuss over them.
If you were wondering, Mr. NaD gets paid on the 15th and last day of the month. I've found this to be so much easier than dealing with a paycheck every two weeks.
I'm a money nerd and I like to go over the amounts again and again even though most people would just need to glance at the bill pay and go yep, that looks right. To make this easy for me, I have a spreadsheet that lists all my Bills on one list and the monthly breakdown of each Future Expense on another list. I look at the bank's website, then delete each item from each checklist to show it went out and went out correctly. Easy Peasy.
The Bills account does not have a debit card or checks associated with it. This is comforting because there is less of a chance of this money being taken via identity theft. Also, I'm a danger to myself sometimes. lol. Not having a debit card (I don't carry checks with me) on this account prevents me from spending this money on impulse shopping.
If you're manually transferring money, it's okay to move the money from the Bills to the Spending Money/Future Expenses accounts on the day Bills get paid. However, if you're setting up recurring transfers, my credit union (I found out the hard way) transfers money first and then pays bills. So if you've miscalculated, a bill may not get paid. If you've miscalculated or mistyped, it's no big deal if you pay your bills and then money doesn't get moved into savings correctly. That's an easy fix. However, if you move too much money to Future Expenses Savings and then you don't have enough money to pay your bills, either a bill doesn't get paid or the bank will charge an insufficient fund fee. This is why we set the Bills to get paid on the 1st and Future Expenses Savings gets moved on the 2nd. I want to eliminate all possible pitfalls and typing something backwards is easy to do.
Now I don't have to check the account exactly on the 1st like I did when I was first setting things up. Sometimes I get busy and don't look at the bank account for at least a week and a half. I still do take a look at the accounts regularly just in case of identity theft. I don't make too many changes so once something is set right, not much goes wrong; but we do pay Irregular Bills so there is potential for making a mistake. Plus accounts can be hacked, etc. so I don't feel comfortable completely ignoring our accounts for a month at a time.
It took a while to get to this point so don't get discouraged if you can't be as quick right away. In the beginning I was spending hours making sure the system worked for me and I double and quadruple checked everything to make sure I could set it on autopilot.
Handling Money in Under 20 Minutes a Month
Since our checks are automatically deposited, our bills are automatically paid, and our spending money and savings are automatically moved, there isn't a whole lot to do. In months where irregular bills pop up or maybe an unexpected event occurs, we just move money from the savings to the checking (if it's not already set up) and set up an automatic bill pay to reimburse the credit card. It only takes a couple of minutes. Figuring out how much to put in the bond funds vs. the stock fund should take less than a minute once I set up my spreadsheet and then maybe another minute or two to process the automatic bill pay. Pulling up the bank and credit card accounts to make sure no typos or fraud has occurred doesn't take long.
Overall, I really don't think about money that much any more. I just use my system and get on with my day.
