Creating a Budget

[mom_2_K'Lynn]

I am sorry if this has been asked before, but I was wondering how all you budget minded DISers separate an Emergency fund vs. a Savings account vs. your monthly money. My husband and I are trying to create a budget and I can't seem to figure this out. Currently we have our savings account and checking account. Checking is for our monthly needs and savings for everything else. But I am looking at adding a special Emergency and Vacation fund up. How would I go about doing this?? Do I just open extra savings accounts?? Thanks for any advice you guys have!!! I just love reading this thread or budget ideas!!!

 

[Justsyd2]

I have a checking account, a personal savings, and a vacation savings account, and my husband has a checking account, and a savings account, and together, we have a ING account (for emergencies). That works for us!

 

[Carl Fredricksen]

I know it sounds excessive, but we have 5 accounts total at 3 different institutions, plus the usual retirement accounts for later life. Our primary bank has Checking and Savings. We also use them for CD's and other low interest savings investments. Checking is the usual everyday bills, and savings is our emergency fund. Bank number 2 has a Checking and Savings. This one get's a steady small deposit from my checks every 2 weeks. We use that for Vacation and Travel so I don't have to use my primary account check card when we go out of town, and it works just like a prepaid credit card. We also cashed in on a special deal they had to open a new account, and got $100 free after our first deposit. The savings at this bank is used for kids school fees, sports fees, etc. when needed. Lastly we have a Paypal account that we have a MasterCard check card for and I funnel a little cash to it for future car repair expenses. I know I am a little crazy on splitting everything up like this, but I like the old "don't keep all your eggs in one basket" philosophy.

If I were just starting to plan it out, I would do checking and savings at one location for my primary bill paying, and backup emergency fund. I would get a Paypal account which is free and pays a little interest, and get a bank card from them for the account (which works just like a credit card anywhere). You can link it to your primary bank account only for transfers to the Paypal account which take a few business days to clear, so if you need a little extra fundage in there for a trip or whatever, you can add it as needed. You could also get any number of online accounts through ING, etc., or just visit another local bank and set up a new account to get a different card, and have it separated from your main accounts.

You could also go the route of keeping a credit card and just pay it off every month. But you should have some kind of secondary card that you can use for travel, online shopping, etc. when you don't want to run the risk of giving out your primary account numbers.

Also, get yourself a good money management program for your PC. I use Microsoft Money personally, but Quicken is just as good. Quicken also offers a basic money manager online at Mint.com, and it's free but has some advertisements on it.

Good luck with your budget planning. We really got focused on it a few years ago, and now both DW and I know where everything is and work together to get to our savings goals, so it's like a cool little game we play together now. Plus by opening up a good dialog on what we wanted to do, we are now debt free except for housing and cars. Took a lot of work, but by planning for the same goal together, we now have a decent nest egg and no debt which has made us both happier people.

 

[Pastamom]

We have a Money Market account that DH's check goes into. It pays for house, and some utilities directly. My check goes into the checking account and we use that for the rest of the monthly bills.

We don't even look at the Money Market unless we have an emergency and use that for vacations and some extra or bigger purchases. We can only withdraw 3 times a month from it so we can't just start writing checks without a penalty - but we can still access it quickly if we need it.

 

[Mathfailure]

It is to your advantage that you are so young and thinking about this, time is your friend when saving money.

For your monthly bills, pay from your checking the set bills like car, utlities ect.

For the weekly cash expenses like gas for cars, food, eating out, personal spending money (not accountable to each other for) I would strongly suggest going to a cash basis known as the envelop system. Take out the amounts for the week, place in an individual envelop, take the money when needed, when it is empty the spending in that catagory ends until the next pay. I do not carry all the money around at once, I only take what I am going to need. ie if going to the gas station I just take how much I need from the gas envelop. No need to carry alot of money at once. It is supposed to be less convient than mindlessly using plastic, so it does take getting used to. It is part of its effectiveness that you need to think and plan before spending.

For emergency funds you need separtate from the checking but convient enough to get fairly quickly. I use a savings account at the same bank as my checking. I have a set amount placed in there each pay, but it is NOT linked up through the ATM I need to go inside the bank to get money. Banks around here are open everyday except Sunday, so I cannot see us having a problem with this schedule.

Long term savings are in a credit union's money market.

Retirement, please set up a Roth IRA for each of you if both of you are working, do all you can to put in the max amount each year as long as possible. Your age is so on your side for this, even go so far as putting in money received as presents to reach the max. When you retire you will thank your current self endlessly if you do this.

For special short term savings, I actually use an old fashioned paper ledger, but I am sure that will not interest a 25 year old!! So set up another account for the short term things, just ask about rates at the banks you use and go with what is a bit better. None pay much right now, but so be it. I have even seen an old fashion vacation club advertized, maybe something like that is offered in your area.

Make a plan, try it, revise, try it, rinse and repeat. You will find the fit, and then you will be on top of your money, and have one huge stress factor removed.

Best wishes

 

[crusoe2]

Our system is pretty simple. I get paid once a month and DH gets paid twice a month. My check is automatically deposited into our checking acct and we use it to pay all the big monthly bills - house, utilities, car payments, etc. DH's first check each month also goes into the checking account and that is what we have for groceries, gas for cars, entertainment, etc for the month. That is also usually enough to handle things like unexpected doctor/medical co-pays, prescriptions, minor car repairs, and such. DH's second paycheck each month is earmarked for the savings account unless we have something major going on and know we'll need some of his pay for that. We both have pretty nice retirement thru work but now that we're in a position to afford it we're going to look into something additional.

I like having all our savings (other than retirement) in one place and we use that for things like vacations, any major purchases (like new furniture or appliances), and true emergencies like major car repairs or a big insurance deductable. We just have a rule that the balance in the savings account can't drop below a certain amount unless it is a real emergency. That way there is always money there in the event of a real emergency or to tide us over if one of us is out of work for awhile. When it comes to things that are discretionary - a trip or something new for the house - we just take stock of how much is in savings and what else is going on in our lives and decide if we are really comfortable spending that much money on something we could live without. Sometimes we go ahead and sometimes we decide to wait. For example, this year we were planning to do a week at Disney again and thought we were going to be able to swing that as well as doing some work on the house. Well, this is DS's senior year and it has turned out to be more expensive than we'd anticipated. So we scaled the trip back to just 4 nights. Then we found out that DS needs to have all his wisdom teeth out and the television in our den started showing signs that it isn't long for this world. So we've decided no Disney trip this year afterall - that and all the other stuff would bring our savings account balance down more than we're comfortable with.

I think maybe that whether you're comfortable with a simple arrangement like ours or truly need several accounts depends on how much discretionary money you have. If we had more money left over after paying the essentials, we might feel the need to spread it around more or try to make it earn more than what we get from a basic savings account. By the time we spread our extra around like that, it would be such small amounts that I don't think the added security or interest earned would amount to enough to be worth the trouble.

 

[wdwfan16]

We have a checking account and savings account at one bank. We keep the savings account as our EF. We can transfer in an instant to the checking account and the other way too. Our pay is deposited into our checking account. We pay our bills with it and when we have extra at the end of the month we transfer it to the EF (if we raided it) or the investment account. We always try to pay all bills and emergencies with our checking account.

The rest of our money is in investments, IRAs or 401Ks. This money is for our future and not to be touched.

We pay for our vacations with CCs but only with money we already have in the checking account. The vacation is prepaid.

 

[PinkRhombus]

We have a certain amount that goes into the credit union for bigger savings. Used only for school tuition and larger projects. This is also our 3-6 months of expenses account.

But our main checking and savings at one bank. That savings is our "anything fund". Any extra money we stumble upon, like tax returns, goes in there. This covers any car repairs AND vacation. We don't even consider bigger vacations (like Disney) if there is not at least a certain amount in there.

Then I have a free checking account there, too, that I have a set amount going in any other week to use for grocery and household. This keep me budgeted and I don't balance that or have to keep receipts.

 

[Irin997]

I have quite an excessive system too. Here's what I have:

USAA Accounts

Checking: Daily Expenses - this is for everyday and fluctuating expenses like gas, groceries, movies, clothing, etc. This is also where my paycheck is deposited.

Checking: Fixed Bills - from every paycheck, I transfer 1/2 of my monthly standard expenses into this account for payment; rent, insurance, utilities, orthodontic payments, student loans, netflix (even though it's entertainment, I budget for it here anyway)

Checking: Daycare Expenses - I have a pre-tax dependent care spending account where the money is deducted from my paycheck and sent to flex spending administrator. This is the account where I pay daycare from and receive reimbursement from. This is like a "wash" account and strictly used for daycare.

Savings: Christmas/Birthday Savings - little amounts are randomly transferred here to help save for presents.

Emigrant Direct:

Emergency Savings: An automatic amount is deposited here from my paycheck, as well as an automatic amount after I receive my paycheck. At least til I get to the ideal amount.

Vacation Savings: An automatic amount is deposited here after I receive my paycheck.

It might be excessive, but it has worked really really well for me for about 2-3 years. I think one of the reasons the Fixed Bills checking has worked so well is because once the money is out of my regular checking, I can't just spend it. I don't sit there and think, ok I only have this amount available because I have this bill coming up. Instead, I really do only have a certain amount available, but my bills are totally taken care of. I'm even about a month ahead of my upcoming bills which is a position I really like being in. It's nice to know that I have the money right now to pay all of May's bills.

 

[minnie1928]

We have a checking and a savings account, but in Quicken I probably have those 2 accounts separated into about 10+ different "accounts". You really don't need multiple bank accounts if you don't want to go that route. You can just track them in a simple spreadsheet where you have "mini" accounts that when added together equal the balance in the bank account. That way your banking transactions (at the actual bank) are fairly simple and if you want to move money from one account to another, you can just do it on paper without having to transfer the money online or by driving to the bank.

Also, depending on your bank, this might help you earn more interest by having all your money in one place if the account has a tiered interest program (ie-higher balances earn higher rates).