How I organize my bank accounts

accounts-diagram2.png


Organize your Bank accounts

If there is one thing that I have learned about personal finances, it is that nothing is one-size-fits-all. There are different tools, methods, products, and investments that work for different people at different phases of their lives. My system that I am currently using to manage my accounts and cashflow did not work for me 5 years ago. But now I couldn’t think of anything easier or more efficient.

Below is a diagram showing how cash flows through my accounts.

 

accounts diagram2

This is a simplified version, but it gets the point across.

Variable Expenses

Every two weeks, our paychecks are direct deposited as noted above in the diagram into our accounts at our credit union. Our checking account for GAS & GROCERY gets a fixed amount deposited into it every two weeks. From this account we get our spending cash (or blow money), pay for fuel for our cars, and groceries. None of the three are really fixed expenses, so when gas prices rise we are forced to cut back on our spending money or grocery bill.

I sure hope that gas doesn’t go up to $4 a gallon – I won’t be able to eat!! :) Keeping a leash on variable expenses is extremely important when trying to save money. Most people do not realize that expenses rise to meet income, and they pay the price because of it.

Look at any well established business and you will find that each department has a set budget for the quarter or year. They have to stay within those limits that have been created for them.

Why do they do this? Because it works. Businesses are in business to make money, so if it minimizes expenses they are happy.I am not suggesting to manage your finances like a CFO, but we can learn a lot about how to get things done from the business world.

Fixed Expenses

Roughly 75% of our paychecks go into our BILLS account. When we set this account up, I calculated how much all of our monthly bills cost, divided it by two and set up a schedule for when each would be paid. So, in all honesty I don’t check the balance in this account very often. Since we know how much needs to be paid out each month, we have exactly that amount deposited in. I use bill pay to pay my bills out of this account every two weeks based on my bill payment schedule.

Budgeting

Part of this fixed amount that gets direct deposited into our BILLS account is our ¬†Capital One 360¬†savings. Cap One 360 is a great budgeting tool and if you don’t have an account with them, I recommend that you take a look at what they have to offer.

From our BILLS account (every two weeks) I transfer a fixed amount into each one of our Cap One 360 savings accounts. As the accounts grow I am earning a good interest rate on my budgeted money.

I would love to hear how you manage your money or any other thoughts or suggestions…


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19 Comments
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  1. @Jason

    I understand about complicating things, I am now on a quest to simplify my life – I am trying to become fairly minimalist with everything – I would love to hear about your financial plan when you have it complete…

  2. Sahar Mohamed

    Dear sirs.
    I am facing serious trouble with my Financial status. I am spending more than i earn not because i Love spending but I cant say NO to my parents reguest regarding Money. I need urgent help on this.

  3. Good.

  4. Thanks for sharing this post I picked up a couple great tips for banking and financial help that I will use.

  5. I do things a lot like this. I only have one paycheck and it all goes into my bill account. My child support gets directly deposited to my other account which I use for child care, Ymca classes, my son’s lunch account, spending money, clothes and groceries.
    What I do a bit differently and has worked great is to get a credit card for the gas station I go to. I charge all of my gas and get 3 cents back per gallon in the form of a gift certificate. This comes out to about 4 free fill-ups per year. When gas was at it’s highest price, I spent between 350 and 400 a month on it. So I categorize my bill account and set aside 400 per month for “auto”. I have the entire balance on the card automatically deducted from my account. Any amount below 400 for the month sits there to cover maintenance and repairs on my truck. I no longer have to budget around gas prices unless they go above $4/gallon. Yay!

  6. If you really feel the need to help them out, budget it in. Let’s say after all your expenses, you take 25% of the remainder and send them a check for that amount every month.

  7. Jason P.

    Bob,
    Based on your article (10 reasons why I love ING direct) with the benefits of free bill pay and ING paper checks, is there any reason why you couldn’t pay all bills through ING and just use your bricks and mortar account to transfer deposits? We haven’t used bill pay before, but it seems like a good way to handle utility bills, etc.

    It seems to me that the main reason to keep your original checking account is because ING requires you to. Is that a correct assessment?

    Thanks!

    • Jason,
      exactly. Basically, ING makes sure you have another account to ‘verify’ that you are a good banking customer. From my history working at a bank, I can attest that a lot of people get turned down for opening a checking account – ING let’s the brick-and-mortar bank do this screening process for them.

      We pay all our bills with ING and don’t really do that much with our brick-n-mortar bank…

      • Bob,

        I’m confused. Base on the above diagram, you are using your brick & mortar bank to pay bills. Would you mind walking us through an example of how your system works, say for buying an airline ticket for a vacation?

  8. I like your idea, is checking account #1 your credit union and checking acct #2 your ING checking? or is there a 3rd checking account in the mix here? Thank you for all the information. . .

  9. Thank you for sharing this information with all of us out on the internet. Only speaking for myself I need all of the financial organization tips I can get :)

  10. This looks very similar to mine. I use ING and PayPal for everything because I get paid twice a week through PayPal. I like PayPal’s debit card because it pays cashback rewards and I’m a big fan of shopping on eBay. Plus, PayPal will make transfers to my ING accounts. I do everything electronically.

    I funnel one of my paychecks into ING Checking to cover my few bills which are automatically paid and to cover groceries, gas and cash. Also, a portion of it goes into my main ING Savings account.

    My other paycheck I funnel into 2 different ING Savings accounts, one is for savings (a big chunk) and the other is for taxes, since I have to pay them myself. The rest of it is just for spending.

    I’m a big proponent of savings and putting the most you can there. I’ve bought a very nice car this way, outright in cash. And I’m now saving to buy a house, outright as well. After the house, I will be saving for my nest egg.

    As I say, it’s better to earn interest than to pay it.

    I’m very happy with the way this works and your diagram is so similar to mine, I just had to comment.

    I like what another commenter said about getting gas rewards that add up to four free fill-ups a year. I may look into that, although I’m very anti-credit cards, I do like the rewards. That’s the beauty of debit. You’ve got to have the money. Now if there were only gas debit cards!

  11. Bob, I really like your site. This is the way we manage our finances. Much simpler than we used to do. very low maintenance. We have been with ING for several years now and really like the way you can set up separate accounts and have money go there automatically.

    I have all bills delivered electronically (cuts down on paper) and then I schedule them for payment right away. I file email confirmations of bill payments in alphabetical folders in my email. Important bills I save as PDF (CutePDF is a free download) and file electronically on my laptop also. Then I have an automated backup of my files (iDrive — I think they back up 2g for free). I am really working on being completely paperless.

    Anyway. Thanks for the site. I will be back to visit often.

  12. Nicole

    I love the idea of using two accounts to keep things organized and as automated as possible. I have a budget, but it’s designed to designate a purpose for every penny every month, so there are times between paychecks when our checking account hits near zero for a day or two. I hate that feeling.

    My question is, how did you do this the first month. It seems like I almost need enough money to cover and entire month’s worth of bills when I set up the bill paying account.

    I also struggle because my husband gets paid every two weeks and I get paid twice a month but on specific dates, not every other Friday. I have a hard time figuring out how much from each check to put in each account, especially because the companies I have to pay are pretty rigid about not changing my billing cycles.

    Any suggestions on how to figure this system out?

    • The solution to this is to spend this month’s income next month. Doing this, you’ll have thousands of dollars in your checking account and will never have to worry again about timing your bill payments. Obviously, you’ll have to save up enough money to equal one month’s worth of income so that you can put it in your checking account to get started. If you can start this method, you won’t regret it! It has worked well for my readers.

  13. Christina

    Recently, I changed checking accounts to an online bank which offers cash back rewards for “credit” purchases. At first I was torn on how to use this because I had been using the envelope system for cash purchases for some time. Happily I found an app for my smart phone which is based on the envelope system and now every time my debit card is swiped I enter the info into my phone right at the register. Now I can enjoy cash back bonuses on all of my purchases and still remain within my budgeted limits :)

  14. Russell

    I really like your website and enjoy the fact that you’re helping others manage their finances by providing valuable information.

    I currently have five accounts (one checking account, two money market accounts and two saving accounts). Besides checking, each account represents a seperate financial goal.

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