We all don’t have the minds of engineers who enjoy creating spreadsheets and spending hours of time analyzing data. (Though I have a special place in my heart for the engineer minds!) It wasn’t too long ago that I worked with a very special client. (Who also holds a special place in my heart.) I was reminded very clearly how much some of us detest and avoid managing our money. Attending to his personal finances was like torture for him, yet he knew he had to be responsible in managing his finances, especially if he wanted to reach his goals.
We needed to find a process that would work for him and be easy to keep up with. So here’s what we did.
Together we created a plan to manage his finances that incorporates as much automatic processing as possible relieving him of the obligations to frequently attend to his finances. Perhaps incorporating this plan or part of it may help you take some of the manual work out of managing your finances.
Utilize Multiple Checking Accounts There’s no rule that says you can only have one checking account. In fact you can set up multiple checking accounts for different things, all with the same financial institution if you’d like. (In this plan, it works best if they are all with the same institution.)
Start with at least two checking accounts and a savings account. One checking account will be designated for your regular and reoccurring payments, such as rent/mortgage, auto loans, student loans, insurance, etc. The other one will be used for discretionary spending. Your savings account is, well, used for savings!
Take Advantage of Automatic Processing Most of us have our paychecks directly deposited. You may even be able to designate specific amounts be directly deposited to two or more different checking accounts. If not that’s ok, you can have it all deposited to one and then automatically transferred to the other accounts. It’s super simple to set up especially if all of your accounts are within one bank.
Next in the checking account earmarked for your regular bills, set up each payment to automatically debit the account for you so you don’t have to remember to write out a check or process a payment. If your financial institution provides bill pay services you can schedule the payments to be made automatically for you or most billing companies will allow you to sign up for ETF and they will debit your checking account automatically. (This is especially helpful if the amount due varies a little month to month.) Just be careful to read the ETF agreements and make sure you know when they will debit your account.
You’ll have to crunch some numbers to figure out how much of your paycheck needs to be deposited to that account or how much needs to be transferred from your other account to meet your bills as they come due. Just make sure the money is there before the bills are due.
Don’t Forget to Save Everyone needs some sort of savings. So again, set it up automatically. If you don’t know how much you can afford to save because you haven’t been tracking your expenses start out with a dollar amount you think seems comfortable, even if it’s $10 a pay. You can always adjust it later on. The key is to get in the habit. If you set it up to do it automatically, it’ll be gone before you even have a chance to miss it.
Track Discretionary Spending What you have left in the other checking account you can now use for discretionary spending. If your financial institution doesn’t offer a system that categorizes your spending for you, you can use a software system that does. You can upload a statement or link your accounts to Mint.com or other similar tracking application. This will give you detail on what got spent, where. Don’t skip the tracking part, assuming that as long as you have enough, it’s all good. It’s still important to review your spending, ensuring the everyday decisions you’re making are aligned with your values.
This system works great for those that don’t like to spend too much time attending to their finances. It takes a little work initially but once up and running should go smoothly for you. If you’re a visual person like I am, click here to see an example of our automatic plan. Automating can save you time and money, but don’t let it serve as an excuse not to be mindful of how you’re utilizing your resources.
Oh! One other helpful hint. If you are as smart as my client, you will recognize when you need help. Reach out to someone you trust to help you set things up and stay on track.