Payday! Yea! For my husband and I, yesterday was payday and I thought it might be helpful to walk you through exactly how I use my budget. I realize that not everyone receives a salary or is paid on the 15th. There are a multitude of different pay cycles which I have written about and you can find here.
However, all of us get to sit down and pay our bills, no matter when or how you get paid. Today, I want to take you through that process using a budget. Some of the steps I haven’t discussed yet, but I will get there. If I just touch on something today that I haven’t dealt with, I will probably come back to it in the future.
The first thing that I do when I get our paycheck is I sit down with our Quicken program, my check register, my finance binder, and a printed copy of my budget. If you do not use a computer program to track your spending and accounts, then you should have written ledgers for your checking account and for each of your credit cards. In that credit card ledger is where you keep a running total of what you owe on each card.
Remember, a credit card should never be used as money you don’t have. This is a sure way leading to debt and difficult times. Inevitably, something will come up that will make that payment hard to make. A credit card should only be used as an alternate means of payment when you already know where in your budget the funds are coming from.
Through the whole of my payday process, my printed budget is my road map. I first of all will look at what I have in my bank account and make sure that my bank account is balanced with the most current statement. If you have a program like Quicken, it will download your statement for you and is very helpful in balancing. I need to do and entire blog on how to balance your statement, because I know that would be really helpful for many of you who are just now coming out of hiding from your finances. The reason you balance your statement first is that sometimes there are fees or miscellaneous charges that you have forgotten to enter into your register. You want to be absolutely accurate with what you have in your account, because bouncing checks is an extremely frustrating waste of money!
I had a friend who bounced an electronic check and the company resubmitted it twelve times before my friend realized what had happened. They ended up with over $300 in bounced check fees from their bank. Matt and I never wanted to even come close to this, so at the beginning of our marriage we decided that we would always keep a “buffer” in our account that we would consider our “zero”. Our particular bank charges fees for a checking account unless you keep a minimum balance of $500 in the account, so we keep a $500 buffer in our checking account at all times. We never even consider that money in any equation. It is just emergency protection that is saving us from fees.
Even if your bank doesn’t charge you any fees for checking (Sorry, South Africa!), it is still a very good idea to keep a buffer in your account, so that you never experience the panic and waste of being overdrawn at the bank.
Your bank statement only comes once a month, so you can decide whether to balance it at the beginning or middle of the month according to when it comes. Once you have balanced your checking account you are ready to begin to work with your deposit. The first thing that I do is to take my account down to zero (or $500). If for instance, my utilities were lower than I expected and budgeted for, I will transfer out any surplus into my savings account.
Basically, each bill period, I only keep the funds that I need in my checking account. If it is money without a purpose, I would rather have it earning interest in my savings account. I can always withdraw it if Matt and I decide there is something that we need or would like to do with that money. So I start from zero. Now part of starting from zero means that I look at my credit card and completely pay off my balance. Now this is not for those of you in credit card debt. Your debt payment is made as part of your budget, and you also should not be using these cards and accruing any more debt. This is for those of you who use your credit card as a part of your budgeting plan to pay for gas and groceries, etc. Everything that you put on this card must be paid off every month, and I actually pay it off every bill period (so twice a month). This way I am accountable to know exactly where the money is coming from.
Let’s say for this example, that my credit card is current, my account is balanced, and I am ready to do my bills. This is the part where you get to use your printed budget and implement your budgeting plan. I simply take our paycheck and subtract whatever cash that I am taking out for budgeted expenses and then write in the deposit amount. I will actually track all of that cash in Quicken and in my register. So I will write into my register: Deposit: Salary $X.00 Cash out $X.00 (groceries $X.00, gas $X.00, entertainment $X.00, etc). Matt and I actually do a combination of Credit card and cash for our bills and spending. I withdraw the cash amount and then write the total deposit into my ledger (enter it into Quicken). I also cross out on my written budget any category that I withdrew cash for, so groceries, gas, and entertainment, etc.
So now you have your bank account buffer (so $500.00 for us) and your salary deposit (minus the cash that you have taken out) total in your account. The next thing I do is, I start at the top of my bills for the bill period I am in and just write them in, so at the top of my sample budget for the bill period of the 15th is Electricity. I go into my finance binder where I hole punched and stored my electricity bill when it came and enter that amount into my ledger. If it is a paper bill, I will write the check and put a stamp on. If I can pay the account on line I will go online right then and pay the bill. The majority of my actual bills are automated which means they automatically debit from my bank or credit card on a day that I have set.
However, that is not possible for every company and bill. Some of you may also pay your bills through bill pay with your bank, which is a wonderful option (if your bank offers it with no fees). You would just then sit with you written budget, your binder, ledger and billpay, and just enter your bill total and pay it from your bank account. I then cross off Electricity. And I just go down the list of bills that I have made, paying the bill, entering it into my bank ledger (or Quicken or whatever program you use). It usually only takes me 20 minutes to sit and pay all my bills because they are all in one place thanks to my binder. They are mostly automated so I only have to write a few checks, and it is just entering all of my bills into my ledger. I will also pay myself first in this process and transfer out savings to my ING account.
At the end of entering all of my bills, I might have some categories that I leave the funds in my bank account for, and these are the only categories that you need to track for the next two weeks. As an example, let’s say that you hate carrying cash and so you leave your grocery money in your account. It is imperative that you track this money as you spend it. Write it down on your printed budget or in a ledger, but do not count on yourself to remember. We always “think” we have spent less than we actually have, unless you track your spending.
So with all of your bills entered, paid, and current, you are done with your bills until the next bill period. It may seem difficult just reading it, but it is going to be so simple as you actually do it, because you won’t be searching for bills. In fact, bills that don’t fluctuate like your mortgage, you can simply enter the amount from your printed budget. And at the end, you have all of your bills that are paid and current crossed off your printed budget and only the ones that you are still tracking will be unmarked. The total amount budgeted for the unmarked bills or expenses should total exactly what you have left in your account (minus your buffer amount).
So maybe 45 minutes of your time, twice a month and you will never have to worry about missing a payment or a bill, or if you are forgetting something. You can relax about your finances and get on with enjoying your life. Budgeting isn’t difficult or stressful. You just needed a plan. And now that you have one, it’s time to practice using it.