Do you ever have trouble managing your day-to-day finances? If so, you’re not alone. Quite a few people I speak to say that they have trouble saving and aren’t sure where their paycheck goes by the end of the month. There are lots of methods to organize your finances, but my personal favorite is to use a particular cash management system of automatic payments and multiple accounts. Here’s how it works:
Primary Checking Account
After contributing to your employer’s retirement plan and possibly an HSA, your paycheck should be direct deposited into your primary checking account. This way your money is available to you as soon as possible and you don’t need to worry about losing a pay check. The bank for this account should be one you plan to keep for a long time. Perhaps it’s particularly convenient to where you live, or they offer a unique service, or you have sentimental reasons for your choice. In my case, I use an online bank with lots of cool features and low costs that also happens to have a local branch here in San Diego in case I ever needed to get a cashier’s check right away.
The reason you want a bank that you won’t want to change is because you’ll have your regular bills automatically paid from this account so it would be a hassle to change it. For each of my bills, I first see if it can be automatically deducted from my credit card with the highest rewards. If not, I have it set up to be paid from this checking account.
Savings and Investment Accounts
From that account, I then have savings transferred each month to my brokerage account to be invested. You may also want to set up automatic transfers to separate savings accounts for things like a vacation or holiday spending. This way, the money will be there when you need it and you’ll know exactly how much you have to spend.
Secondary Checking Account
In addition, I have a set amount transferred each month from my primary checking account to a separate rewards checking account. This account contains most of my emergency savings because it earns the highest interest rate. Anything in excess of those emergency savings is like an allowance. It’s mine to spend however I see fit, which is usually on groceries and eating out. Whatever I don’t spend gets rolled over to the next month and can be splurged on a big purchase in the future. But when the money is gone, it’s gone until the next transfer. This system liberates me from having to budget every penny while still making sure I don’t spend more than I’d like to. I can just glance at the balance to see how much more I can spend for the rest of any given month. Finally, I make sure to use my debit card with this account as much as possible in order to qualify for the rewards checking account rate.
The other reason to keep this account separate is that I want to be able to easily switch this account from one bank to another. That’s because the bank paying the highest interest rate one year may not be the best next year. They can also change their requirements to earn that higher rate. If it makes sense to switch, I want to be able to just change the account for the automatic transfer, move the balance, and get a new debit card without the hassle of changing the auto-payments for all my other bills.
While this system may seem complex and takes some time upfront to set up, I find that it actually simplifies my cash management and saves me time in the long run. After all, I don’t have to worry about paying each of my bills or making sure I’m saving towards my goals and I know exactly how much I can afford to spend each month on discretionary expenses like food, shopping, and entertainment. This system can do the same for you or you can modify it or create your own version to fit your needs. The less time you spend thinking and worrying about money, the more time you’ll have to live life.