One of my New Year’s resolutions was to simplify the way I budget. Over the years I have grown consistently obsessive over every aspect of my finances. It was beginning to become a problem.
So after many months in a row of daily updates, fretting over the categorization of expenses (should paper towels purchased at the grocery store go under Household, or Food, or should I create a new Paper Products category – ugh!), I have decided on a new approach.
Using Two Checking Accounts to Manage Big-Picture Household Finances
From now on, I will simply have my paycheck split into two checking accounts. The majority of the money will go to a “Bills and Savings” account, where I will have regular expenses and savings contributions (Roth IRA, DRIP stocks, etc.) automatically deducted.
Things like the mortgage, utilities and any subscriptions of services we pay for on a monthly basis will come from this Bills and Savings account. What’s left in the primary checking account will be ours to spend – our “What’s Left” account. That’s it; that’s all there is to it.
Don’t worry too much over the “split” either. It doesn’t have to be exact because you can theoretically move money from one account to the other.
Add up all of your regular bills, plus your monthly savings contributions, and have roughly that amount taken out of your paycheck and moved to your Bills and Savings checking account. And when estimating for this account, round up just to be safe.
For most people, that split might look like a 70/30 split between your “Bill and Savings” account and your “What’s Left” account. So if your take-home pay is $2,000 a paycheck, have 70%, or $1,400, transferred to your “Bills and Savings” account.
Then make it a goal to live off the remaining $600 left in your primary checking account. Things like gas and food and entertainment expenses are deducted here. If you run out of money in the “What’s Left” account, you better start searching the pantry for food and giving up on entertainment until your next paycheck replenishes the account.
Tracking the “What’s Left” Expenditures
I am no longer tracking every penny I spend on food, or gas, or paper towels, or books and movies. I will still try to spend as little as possible on those things, and have vowed to renew my interest in using coupons where possible. However, I am not going to invest my time in tracking all of our expenses to an infinite detail, because quite honestly, looking back I can’t see what we’ve gained from that exercise.
With several months of detailed tracking available at Mint.com, and in our household ledger, I can see that we spend more money on gas than we did a couple years ago. Duh, that’s because gas prices have gone up.
I can also see that we pay a little more each time at the grocery store, and that thanks to new fees, our cable provider has increased our services. But what can I do with this information?
Focus on “Big-Picture Finances”
More important to me is the fact that we have spent less than we’ve earned. We’ve increased savings. We’ve paid off our debts. We are saving for retirement, and college, and we are funding a few sinking funds to cover those once-or-twice-a-year expenses like car tags and vacations.
We are winning over the long term. We are winning the big picture. That’s what really matters – not how much I’m spending on dog food or fast food from one month to the next (no, it is not a coincidence those examples were found in the same sentence).
Now, I don’t mean to completely knock the process of tracking expenses. It can be a very important exercise, particularly if done on a short-term basis (for 30 days, for instance), to get a handle on where your money is going. However, it isn’t something I would spend a lot of time on every single month, or in my own previously obsessive example, every single day!
Life is short. You can spend it meticulously going through receipts to split costs from your last grocery store visit between paper products, baby food, and the Redbox rental you grabbed on the way home, or you can look back at the end of the month and reflect on your increase in savings, your reduction (or avoidance) of debt, and your time spent doing things other than updating your elaborate budgeting program.