Having a personal budget is crucial if you are wanting to win at the finance game of life. Being in control of your money brings a sense of peace and control. But let’s be honest, writing out a budget and actually sticking to it are two completely different things. I’ve found that budgeting with numerous bank accounts is super helpful, though, as it forces me to stick to the budget I’ve written out.
If you’ve ever heard of Dave Ramsey‘s Total Money Makeover, then you’re well-aware of the cash envelope system. Basically, you have an envelope for each category of your budget, and then you take your money out of the bank and fund your envelopes. When the envelope is empty, you stop spending in that category until the next payday.
I was a big fan of the cash envelope system back when I really started to pay attention to my budget. But over time, I found that it got complicated due to so many things being paid online. Online ordering and subscriptions made it feel like I was running to the bank every two seconds. I loved the discipline of the envelopes, but it was just taking too much time. So, I thought, “What if my envelopes were just bank accounts?”.
It’s not hard to find banks that offer free checking accounts with zero monthly fees. I have a local bank, for example, that even offers free checks. So, I called up my local banker, and told her I needed to open a few bank accounts. Within minutes I had separate checking accounts, each with its own debit card, to replace some of my envelope categories.
To be fair, the bank account budgeting system isn’t as robust as when I had envelopes. For example, when I had envelopes, I would have very detailed categories (maybe this was part of my problem). But, for the bank accounts, I narrowed it down to rather broad categories.
So, how does this work, exactly?
First, you need to write down everything you spend your money on. Write down some broad categories, and then assign all of your spending to one of those categories. Be sure to look at past bank and credit card statements so you’re fully aware of your true spending habits. Then, take your income each month, and work backwards from that number. You want to tell your money where to go! Start with the categories that are non-negotiable. Housing, food, utilities, etc. Spend your money there, first. Then work your way down to more discretionary categories, in case you’re one of the many people who spend more than they earn. The goal is to have zero dollars left from your income, with every penny having a home to go to.
Here are my bank accounts that I use to budget:
- Main – this is the funding account where all paychecks get deposited into. This is also where automatic payments such as mortgage and insurance come out of.
- Savings – I make sure to set aside money regularly for the unexpected things that will absolutely end up popping up later. The car will need repairs, there will be a medical emergency, etc.
- Kids – anything kid-related comes out of this account. Music lessons, school supplies, camp, hair cuts…if I spend it on my kids, this is the account I use.
- Utilities – Every January I take the previous year’s utility bills and figure out what my average monthly cost is. I take that average amount and tack on a little more because prices just naturally tend to go up every year. I then take that new “average” and transfer the same amount monthly. That way, I know I’m budgeting for the fluctuations that will happen throughout the year.
- Fun Money – this is my personal account where I allow myself to have money set aside for clothes, makeup, coffee. Anything that isn’t a necessity and is for me, personally, will come from this account. Having limited money here makes me think long and hard about whether that $7 coffee is worth it if I know it’ll mean I have to wait longer to buy my favorite eye shadow.
- Gas & Groceries – this one is pretty self-explanatory. I do weekly transfers into this account as doing one lump sum each month caused me to continuously run short towards the end of the month. It was too hard to gauge if I was on track with my spending. Weekly transfers allow me to be more disciplined to only buy what we need, and if we’re running low towards the end of the week, well then I guess it’s time to get creative and see if I can make it work with what’s left in my fridge and pantry.
I do still set aside cash in envelopes for things like vacations and birthday/Christmas gifts. Because I’m not spending money as frequently on these things, I find that taking out the cash each month still forces me to be disciplined, but it also doesn’t clutter up my online banking with 50 different bank accounts.
I have a fireproof safe that I keep my cash in, and I use these multi-colored cash envelopes to keep the money organized by category. Putting it in an envelope that is locked away really makes you work just a tad harder to spend it, so it’s less likely you’ll “borrow” from these categories.
There are so many ways you can budget, and there is no perfect way except the way that works for you. Sometimes it just takes trying different methods and seeing what works and what doesn’t! Do you have any tips, tricks, or methods? Share them below!
