For this budgeting trick you will need:
- 2 checking accounts and 1 savings account.
Within your online banking system nickname these bank accounts as “Household Checking”, “Household Savings” and “Expense Account”. The Household Checking account is where the family will pay regular daily expenses including groceries, gas, and eating-out. This is also the account where all deposits should go (like direct deposits or payroll checks).
The Expense Account will be used to pay all bills. And the Savings Account will be used to store 20% of your income. Remember, you will no longer pay any bills from your Household account, no auto-withdrawals, no electric bills, no rent etc. All bills should now be paid through the Expense account using the method below.
To get started you will also need:
1. The ability to transfer money between your accounts.
2. A list of your regular monthly bills and automatic charges. (Yes, all of them.)
3. An idea of the amount your family needs weekly in cash, just an idea.
4. Finally you will need to move a “cushion amount” into your Expense account to get started. For example, $200.
Here are the 4 basic steps that will make this a successful budgeting system:
1. When a deposit comes into your Household Checking account, immediately transfer 20% of that money into your Household Savings account. Sometimes you can set this up as an automatic transaction through your paycheck.
2. Schedule a time twice a month to sit down and pay bills. If you receive a regular income deposit then best to pay your bills at the same time that the deposit posts.
And here’s the simple trick.
3. Every time you sit down to pay bills (from the Expense account) total the amount you will pay for all bills and transfer that amount from your Household checking into your Expense account.
4. When you are done paying bills (after you have made this transfer) if there is more than 2 times your family’s needed weekly cash in the Household account, then transfer the overage into your Savings account.
For example, if you determined you need $500 per week for your household and after you transferred money for bills to the Expense account, your Household checking account has $1,200 in it, then transfer $200 to your Savings account. (This is on top of the 20% you transferred in step 1.)
Now you’ve built on your Savings, consolidated money for bills and your family checking account is funded for the week. All the payments you just made for bills will clear the Expense account and the Expense account will return to its cushion amount. You do not have to monitor this account much further. You may have to replenish your cushion as bank fees clear the account.
If you find that your family’s Household account is often depleted, you do not have enough cash for bills, or you are continuously moving money from Savings to Household, then your family’s expenses are exceeding its income. You'll need to review all monthly transactions to isolate unnecessary spending.