You sit down every month, review last month’s budget and wonder, “how do I keep messing this up?!” I get this question a lot and I completely understand the frustration that comes with never being able to stick to your budget. The way we function as a society today is mobile, technology-driven, and happens at a super-fast pace. Gone are the days when you carry around your checkbook everywhere you go and instead we are bombarded with millions of marketing messages and retailers that look for ways to get our money into their pockets. After all, it is much less painful to swipe a card than it is to hand over that cold, hard cash!
When people come to me for help, the first thing I recommend is to switch all discretionary spending to cash. That means you can still pay all of your regular bills through your beloved bill pay but you need to put away those debit and credit cards until your brain learns the true value of a dollar. Saving up for something specific and then handing that cash over is a great way to prioritize your needs over you wants and to learn a valuable life skill in our consumer-driven society. Here is the best way to cash flow your budget and to stay out of debt.
Pay The Bills
Take 30 minutes one day to sit down and figure out what your monthly bills consist of by looking at your bank statements for the last two to three months. This will give you a good average of monthly utilities and will allow you to catch any quarterly expenses that may be lurking in your spending. Once you’ve tallied a solid monthly figure of your bills and other monthly obligations, set up a separate checking account specifically for all of your recurring bills and deposit that amount each month. For example, if your monthly bills are $1,000/month you may want to open an account with $500 – $1,000 (for a sufficient cushion) and then deposit $500 on the 1st and $500 on the 15th and make use of the Bill Pay function that many banks offer to ensure your bills are covered each month.
If you can set aside 15 – 20% of your income each month, give yourself a pat on the back! If you can only start with saving 1% of your income then be proud that you are at least moving in the right direction. The goal will be to increase that each year by 1-3% until you are able to save a bigger chunk of your income. The problem is that many people are able to save something but they instead end up spending it because it is mixed in with their other funds. Open a separate checking (or preferably savings) account to automatically set aside a fixed amount every pay period. Even better if you’re able to set that aside in a retirement account! Paying yourself first will ensure you’re not spending away your future.
Know What Is Spendable
The most important part to not blowing your budget is to know what you can spend. If you’ve already set funds aside to pay your bills, and you put money away in savings, then that means whatever is left over is for you to spend! If you’re struggling with a bad shopping habit or want to ensure spending is equal between a couple, split the cash between some envelopes. You can use these handy cash envelopes I found on Amazon or just make your own! I would recommend opening a separate account for this category as well and dividing up your spendable amount into weekly increments so you only withdraw what you need each week. I have found that taking smaller steps (such as on a week-to-week basis) is much easier than tackling this exercise as a whole each month.
Many employers allow you to split your direct deposit into several different accounts. If this is your case, take advantage since automating everything takes a lot of the legwork out of everything and will ultimately lead to more success. If you’re self-employed or otherwise, figure out your deposit dates and set up an automatic funds transfer into your separate accounts within your own bank. Just be sure that you are banking with an institution that provides free checking accounts! I personally bank with USAA and would recommend them to anyone! They provide free checking, mobile deposits, and they reimburse ATM fees up to a generous amount. Do you have any tricks of your own to stick to your budget? I would love to hear them!
Disclaimer: I am a CERTIFIED FINANCIAL PLANNER TM (CFP®), but I am not your CFP® or financial advisor. The information in this article is for general informational and entertainment purposes only and does not constitute financial advice. This article does not create a financial planner-client relationship. The author is not liable for any losses or damages related to actions of failure to act related to the content in this article. If you need specific financial advice, consult with a licensed financial advisor or CFP® who can tailor advice regarding your specific circumstances. Additionally, sometimes I use affiliate links to support my website. This means I may earn a small commission, which is no additional cost to you, for referring and discussing products and services that I personally use, or have used, and trust. Thanks for your support!