The No-Tracking Budget

April 21, 2023

You don’t have to be a financial planner to know that one of the critical ingredients of financial security is having a budget, but knowing you need one and actually sticking to one are two different stories. We’re not here to lecture about why you should budget; let’s instead discuss a way to make it less painful. The purpose of a budget is threefold:

First, to ensure you are not spending more than you earn.
To figure out how much you can actually afford to save.
If you are spending more than you make or you’d like to save more, then it helps to figure out where you might be able to cut back.

Finding a way to stick to your budget

Putting together a budget is one thing. Sticking to it is another. Putting together is relatively simple, and while there are many tools to help, sticking to it is where most people give up. So let’s talk about that part, assuming you already know how much you need to spend each month on needs versus wants.

Stop obsessing over categories when tracking.

Confession: I can’t tell you exactly how much I spent dining out last month. And I can’t tell you how much I plan to spend on it this month. That’s because that number isn’t as important to me as first ensuring I cover all my other financial goals.

I can tell you how much I’m saving toward several small but significant financial priorities so that whatever is left over is what I can spend on things I can go without, such as sushi night, shopping, spa services, or Target. (Yes, Target is a discretionary expense for me, and don’t tell me you also haven’t discovered their magnetic carts that just attract things.)

By prioritizing the things I know I need to make happen financially, I essentially back into what I can spend on wants without any tracking beyond setting up an alert to tell me if my account dips below $100.

Make it automatic

I do this through automatic transfers set to happen each payday. I have a series of savings accounts, one for each financial priority, through an online bank that lets me set up as many different savings accounts as I want. It’s the electronic version of the envelope system.

My checking account for spending money is at a “bricks and mortar” bank, and I have a checking account for bills that’s also housed at the online bank. Here are some other accounts that you might set up:

Accounts to set up for the no-tracking budget

Monthly bills

Separating your known monthly bills into a separate account and setting them on auto-pay might revolutionize your relationship with money. This account is for things with due dates and relatively set amounts like rent/mortgage, cable, cell phone, etc. You may need to estimate for things like electricity and gas. I use the highest amount from the past year, which ensures I’m well-funded.

What isn’t this account for? Things you can pick and choose how much and when to spend each month like groceries, personal care, and even your dog walker. Yes, this is money you need to spend, but it doesn’t have a due date or a set amount, which defeats the purpose. This fixed amount would only fluctuate if you made a drastic change like moving, canceling cable, etc.

Emergency fund

Getting this account funded with three months of expenses was my top priority, so before I even opened another account, I saved as much as I could. Now it’s just there, accruing interest. I can’t over-emphasize the peace of mind this gives me.

What isn’t this account for? Things I forgot to include in my “oh crap” account, like expenses to stand up at a wedding, Christmas gifts for family, or a plane ticket for a funeral. Those are all important things, but they are not an emergency.

Car stuff

This account is for car-related things such as insurance, new tires, repairs, registration, etc. Once it’s paid off, I’ll transfer my monthly payment into this account too, so I can save to buy my next car with cash.

What isn’t this account for? Gas money – that’s discretionary and comes out of my spending account.

Pet Medical

Pet insurance can run from $10-$90 per month, and Consumer Reports found that it’s not worth the money for the average healthy pet. Instead, pay yourself the premium so that if/when an expensive injury or illness pops up, you have some money saved. It’s worth noting that most pets’ major expenses come when they’re older, so if you do this throughout their life, you should have a sizable chunk built up by the time you need blood work and x-rays to figure out what old age ailment they have.

What isn’t this account for? Pet food (spending account), pet-sitting (spending or vacation account), and routine visits unless you’re accounting for that with the amount you’re setting aside into this account.

Kid activities

If you have kids, then you know that their extracurricular activities can add up pretty quickly. Try annualizing the costs and transferring one-twelfth each month to ease the burden of sign-up and gear-up season.

What isn’t this account for? Clothing, toys, everyday family expenses – try to isolate the “extra” stuff in this account, which can be a way for spouses who may disagree about how much to spend on this stuff to keep tabs on it in an agreeable way.

Depending on what’s important to you and what you want to better control your spending on, you may have other accounts. For example, my friend with a side gig has an account where she puts 20% of her income aside to have enough at tax time.

It takes some work to set up these accounts, but it’s worth it.

Real Results

I shared this system with a colleague of mine who is a busy mom of two young children, and her email to me says it all:

“I just wanted to say thank you. I’ve separated all my fixed bills through those accounts and set up a few savings accounts for shorter-term larger dollar items – Christmas, home improvements, and travel. That way, we don’t have to either put off those things or feel guilty about spending money on them.

Plus, I set up accounts for the girls for them to earn money and use on toys or whatever, and the transition of seeing the numbers is easier for them because they are still learning math and identifying the value of the paper/coin money. So, they earn it in cash, then we add it up and deposit it into our bank, and I transfer the money to their accounts.”

If you’re having trouble sticking to your budget, why not try it? What will your accounts be? Customize it to your life, and just make sure you’re also being deliberate with any “extra” money you find by trying this process!

3 Cash Management Tips That Work

April 05, 2018

One of the most common things we talk to people about at Financial Finesse is deciding to take control of your spending. The most crucial step in making that happen is figuring out how to manage your cash flow. In order to take that commitment and turn it into habits that stick, you’ll need some strategies to help you along the way.

Let’s look at a few ideas that can help you master your cash flow – try one or two of them out to see what works best for you.

1. The Planned Spending Account system

The problem: Most people tend to have just two bank accounts – a checking account and a savings account. With the best of intentions each month, we often set a goal to transfer any money left over each month from our checking account to our savings account. But if you are anything like me, money in the checking account has a way of being spent, leaving little to nothing to move into savings at the end of the month. Even worse, too often money is transferred out of savings into checking because there always seems to be unexpected expenses not in the budget that come up. This cycle is frustrating and doesn’t get us closer to our goals.

If you’re one of those people who feels like every time you start to get ahead with savings, something else random always seems to pop up, then this method is for you.

How to fix it

Things like vacations, car repair/maintenance, clothing, and gifts are examples of expenses you know you will have through the year, but not necessarily every month. Since you know they are coming, these expenses are not emergencies. So why pull from your emergency savings to pay for them?

How do you set that money aside so it doesn’t get spent from your checking account or deplete your emergency savings account? The answer is adding a third account – the planned spending account.

Here’s how it works:

Open a third bank account (preferably a savings account at a separate bank so it isn’t as easy to move money to your checking account) that is just for planned expenses that do not occur every month.

Add up all needs that occur regularly but not monthly, like property taxes, car registration, hair cuts, etc. Also include less predictable wants like clothes, vacations, and gifts. Figure the total for planned spending for the year, divide that by 12, then deposit that amount into your planned spending account automatically each month. It really is that easy!

Planned Spending Category	Annual Amount	Monthly Estimate
Car Insurance	$1,800	$150
Clothing	$800	$67
Vacation	$900	$75
Gifts	$600	$50
Medical expenses	$2,000	$167
Home repairs	$1,200	$100
TOTAL	$7,300	$609

Now when the Holidays come around or the car needs an oil change, how have the money set aside to pay those bills. No need to raid your emergency fund or pull out the credit card! This system may mean you move less into your savings each month, but you will see your savings grow because you won’t be making withdrawals either. This system is also great for helping you get out of debt and reaching your other financial goals.

Month	Deposit	Bills	Expenses	Balance
January	$609	Clothing	$315	$294
February	$609	Medical bill, home repair	$390	$513
March	$609	Car insurance, gifts	$550	$572
April	$609	Car repair	$300	$881
May	$609	Clothing, home repair	$380	$1,110
June	$609	Car insurance, medical	$1,100	$619

2. The Cash Only system

The problem: Swiping a card makes it far too easy to spend-spend-spend, without really feeling how much is actually going out. Before we know it, we’ve blown our budget and may even have to “borrow” from savings to make ends meet.

How to fix it

One way to help control impulse spending is to commit to only spending cold, hard cash on these items. Commit to only using cash for all shopping during the week: grocery store, dining out, entertainment, etc. Resolve that when the cash is gone, you’ll be done spending and will go without for the rest of the week. Several of my colleagues use this method to great success.

Here’s how it works:

It is ok to use checks, auto-pay or EFT for household expenses – no need to stuff an envelope with cash and send it to your landlord or mortgage company. This is for everything else.
If you use the Planned Spending Account system described above, pay your irregular expenses from that account.
For all other expenses that you haven’t accounted for in your Planned Spending Account, use your budget or spending plan to total your nonessential expenses for the month, then divide by 4.3 (number of weeks in the month) to determine how much is available for the week.
Then either write a check for cash or go to the ATM on the same day each week to get your cash for the week.
When you go out, leave the checkbook and credit cards at home.
When the cash runs out, no more spending for the week.

Many of us think if we carry cash, we will be inclined to overspend. But if you stick with this system, you will most likely find that you’ll spend less. Think about how much more real it is to hand over six $20 bills at the grocery store rather than inserting your card into the chip reader — you’ll quickly find yourself re-thinking impulse buys.

Potential downsides

You will want to make sure you are careful with your cash – one of the risks with using this system is lost cash and carrying a lot of cash can be dangerous. And while this system will help you avoid debt, you will lose out on credit card rewards and may make it harder to build your credit score. You’ll have to decide which is more important to you.

3. The Envelope system

The problem: Oftentimes an examination of past spending can lead to a realization that you have been spending a lot more on certain categories than you’d like. Trip to Target and Costco, anyone? But finding a way to stick to the new limits you set is the never-ending challenge.

How to fix it

This is an oldie-but-a-goodie! The idea is to take out enough cash each pay period to cover your budgeted expenses, then create an envelope for each category in your budget: Groceries, Entertainment, Dining Out, etc.

Here’s how it works

On payday, head to the bank or ATM and take out enough cash to cover your budgeted spending until you’re paid again.
Divide the cash into envelopes and label for each category.
If a certain store is a weakness, give it its own envelope.
When you go out to eat, take your Dining Out envelope with you and pay with that cash. Heading to the grocery store? Grab that envelope.
Once that cash is gone, then you are done spending in that category until your next paycheck.

Note that it is ok to “borrow” from other categories if necessary, but no going to get more cash out of your account! You will have the most success if you stop spending once the envelope is empty.

If you like the idea of the envelope system, but are not crazy about carrying around cash and envelopes, there are also several apps that help with this same idea.

Worth it in the end

Whether your goal is to just stay on top of your spending, reduce your debt, prepare for the unexpected, save more for retirement or simply save for other financial goals, pairing your commitment to controlling your cash flow with these systems will help. If you find that one method isn’t working for you, try another — as long as you’re feeling more in control of where your money is going, it’s working!

How to Manage Money as a Couple

February 24, 2015

I was talking to a young married couple who was fighting over money. What fascinated me the most was that they just got back from their honeymoon. The ink is not even dry on their wedding certificate and they are already screaming divorce. They then came to me for advice. As l listened, it sounded like my husband and myself during our first year or marriage and I shared some of the lessons learned in how to manage money as a couple, especially when you are very different people. Continue reading “How to Manage Money as a Couple”