Ever since Shane started getting bi-weekly paychecks instead of monthly back in May, I’ve felt out of my budgeting element. With a once-a-month pay cycle, I could just schedule bills to be paid out of that amount and not have to think about it anymore. Our bank deducted the upcoming bill amount from our “available” funds so that we couldn’t overspend.
But with bi-weekly checks, my brain couldn’t process it. Some bills had consistent due dates, such as our mortgage. Bills such as electric, gas, and water/sewer were due a different day each billing period. One month, a bill might be due the 27th. The next, it would be due on the 23rd. Or something. And, some months (like this month, for instance) we don’t receive his first paycheck until the 13th.
I ran into trouble with this because sometimes the bill would come out of the second paycheck of the month, but other times it would need to come out of the first.
I felt frustrated with the bills. I could have called some billers and asked if they could move my due date, but I decided to go another route.
I’m automating bills in a way that will save me a lot of time. Also, I won’t have to scrutnize our cash flow each pay period: Will we have enough for this bill? Or do I need to float it with savings?
Right now, I’m listening to the I Will Teach You To Be Rich* audiobook that I borrowed from the library. The author is big on automating and I’m using my version of his techniques below (and some directly from him are linked to at the bottom).
I added up our fixed bills and looked at the ranges for what I could expect. Our gas bill, at its cheapest, was $25. The highest has been $110, and we’ve had an extremely mild winter so far. We don’t have a budget bill option yet, since we haven’t been here a full year.
So, I took worst-case scenerios for each category:
- Mortgage $850 (PITI plus a tiny bit of extra principal)
- Cell phones $56
- Gas: $25-110
- Electric: $86-100
- Internet: $41
- Trash & recycles: $18.30
- Water/sewer: $63-94
- Insurances (life, disability, car) $80/biweekly, usually $160/month
Total: $1300-1,429/month fixed bills
I rounded up the 1,429 to a full $1,500/month as an extra cushion.
I took that $1,500 and divided it by two: $750. Now, $750 by itself isn’t enough to pay our highest bill, so we’ll need some starting cushion in our checking account to cover everything until we have a few billing cycles going.
I’m going to have $750 from each of Shane’s paychecks deposited into our PNC bank account to cover our fixed bills.
We’ll also deposit our tithe (we write a check for this), IRA contributions, 529 account contributions, and a small general savings amount.
I tallied up this figure and we’re changing Shane’s direct deposit at work to cover this new amount. This is where our bills are already set up for online bill-pay, and I’ll make sure they’re automatically paid as they come due. The rest will go to our ING Direct account.
I’m scheduling our IRA to withdrawal 9% of our gross with each pay check, and I have it set up to do so a couple of days after pay day. The 529 plans will get an automatic contribution each month.
In essence, our PNC bank account will be for bills and for routing our investment funds to where they need to go. There will be some additional savings growing here, and we haven’t decided what we’ll do with it. We also haven’t decided what we’ll do with the third paychecks that will come this year. One is coming in June and the other will show up in November.
We’re having the remainder of Shane’s paycheck direct-deposited into our ING Direct account. Here, we have a checking account with debit cards, and a number of savings accounts all linked to one another. I’ve created several sub-accounts, such as home repair, car maintenance/tags, clothes, vision/dental, etc.
I’m trying to think ahead for the year on what we might spend in each of these categories, and we’ll set up automatic transfers to each account, occuring on payday. So, part of Shane’s check will deposit into ING on a Friday, and automatically $20 (or whatever) will be routed from there into our home repair category.
It’s a high-tech envelope system for budgeting. It’s taking the cash out of the process, and it’s also taking ME out of the process from having to do it manually each pay period. It does take time to sort and send money to where it needs to go, but also, by automating it, it ensures that I won’t just say, “Oh, we can skip saving for X this month. Let’s use the money for THIS instead.”
It’s a built-in protection for our finances, while still keeping it loose enough that we don’t feel restricted. We know money is available and ready to pay our bills, and we know money is available to spend on things we need and want.
And, if things go well, we should end up with quite a bit extra in our PNC account by the end of the year, with the two extra paychecks and also the cushion and savings I’m allocating. We can take those bigger chunks and further fund our IRAs, college, use for Christmas gifts, a vacation, whatever we want.
As noted in some of the articles I’m linking to below, you do have to be careful with fully automating things. For one thing, it’s important to still at least look at the bill to make sure there aren’t errors in charges. And, it’s important to make sure you’re not automating bills you don’t even need in the first place.
Further, it doesn’t mean I’m just setting it up and forgetting about it. Far from it. I’ll still make sure the system is working for me.
Here’s some more on automating your finances, or perhaps some warnings to consider if you do automate:
- How to automate your personal finances at Get Rich Slowly (I think my system most closely resembles this one, since I’m using two checking accounts)
- Automate your personal finances at I Will Teach You To Be Rich
- The psychology of automation: Building a bulletproof personal finance system at Four-Hour Workweek
- Devil’s advocate: Automating your finances is an expensive mistake at Bargaineering
- Warning against it: Automated bill payments are a cinch (not so fast) at Your Money via NY Times
- Automate or unautomate your finances? at Free From Broke
- Why I automate my finances and who probably shouldn’t do it at PT Money