Budgeting can be hard. It requires ‘won’t-power’. There are lots of things we will buy, but it is the things we won’t buy that matter. It may be that the best way to give yourself some won’t power is to force yourself to budget. A forced budget revolves around paying all of your monthly bills first, in a separate account, leaving only the remainder for discretionary spending. Here’s how it works:
Step 1: Identify all of your monthly regular bills. This includes things such as your:
- Housing – Rent or Mortgage
- Insurance – Home/Renters, Health, and Auto
- Utilities – Gas/Oil, Electricity, Water, Cable/Internet
- Car Loan
- Monthly Minimum Payments – Credit Cards, Student Loans, Etc.
- Any other ‘regular’ monthly bills
Step 2: Add up your regular monthly bills. This number may surprise you. Your regular monthly bills are somewhat fixed and represent the minimum you need to cover each month. To even things out, most utilities offer a ‘budget billing’ program, which will average your spending across the year.
Step 3: Create a separate checking or savings account for your monthly bills. Pick an account at another bank (you don’t want it as part of your ‘normal’ checking) and make sure the account has no fees. Any of the online banks are fine, just pick the one you like.
Step 4: Change your direct deposit with your employer to deposit enough into your new account to cover your regular bills. If you are on a bi-weekly (or twice a month) paycheck, just divide your total regular bills in half. If you are paid weekly, divide by 4.
Step 5: Set up your monthly bills to automatically withdraw from the account. Automate it all, both the deposits and withdrawals. Just make sure you have enough in there to cover the first withdrawals.
The result is that all of your monthly bills will be covered, without you thinking about it. The remainder of your money will go into your normal checking account and frankly will force you to cut back on expenses. You need to pay your rent/mortgage every month, which this plan does, but without the peaks and valleys, we normally expect. Additionally, since you are dividing your monthly expenses by 2 or 4, you will have an extra paycheck or two going into your account. Keep a little cushion in your account (1-2 paychecks) and use the others for your Christmas or other holiday expenses.
What happens if your regular monthly expenses are more than you take home? Then something needs to change, quickly. If you need help working on your budget, prioritization, and finding areas to save, I’m here to help. Just email me at [email protected].