Budgeting for expenses is tough. Here’s a useful tip.
This is the first part of a series in where I will teach you methods and tricks to help you properly balance you monthly expenses. Please enjoy and if you find this advice useful share this article on Facebook, Twitter or text so you can help that one friend or family member who is terrible with their money.
The Two Bank Account Method
I have used this method since college and it’s amazing how a simple trick can make you look at your expenses in a different way. It’s relatively simple, have two separate bank accounts with separate debit cards. One bank account will be used for day to day expenses, this account will be named “A” account, while the other one is where your income will be deposited and monthly fixed expenses will come out of, we’ll name this “B” account. Bank account B’s debit card should only be used when attempting to make a large BUDGETED purchases such as putting a down payment on a vehicle, purchasing furniture, expensive electronics, etc. When you are low in funds in bank account “A” you will transfer money to it from bank account “B” using simple transfer tools such as Zelle which is completely free to use.
Let’s break this down even further and give you a real-life example of how I personally use this method.
I have two bank accounts, Wells Fargo and US Bank. My Wells Fargo account is for my day to day expenses. My US Bank account is where my income is direct deposited into and is used for my fixed monthly expenses.
What do I consider day to day expenses? (Bank account “A”)
- Food
- Gas
- Any other small purchases such as buying an energy drink, new clothing, dry cleaning, etc. You get the idea.
What do I consider monthly fixed expenses? (Bank Account “B”, my income/paychecks are also deposited into this account. Usually all these payments will be on autopay)
- Phone bill
- Rent or Mortgage Payment
- Utility bill
- Internet bill
- Car payment
- Insurance payment
- Other debt payments (such as your wretched student loan payments that I dread every month)
- Subscriptions (Spotify, Apple Music, Netflix, etc)
- Essentially any payments that you make on a monthly basis
Whenever my bank account A becomes low on funds, I use Zelle to transfer money from my bank account B to bank account A. Zelle, like I mentioned earlier, is free to use and is usually an instant transfer.
This method is not only extremely useful, but it changes the way you look at your money. You are limiting the amount you can spend on a day to day basis and therefore will be more cautious when it comes to unnecessary purchases. Eventually you will get to a point where you know how much money it takes to get you through a whole month, so you will only need to make one monthly money transfer to your bank account A.
A question I usually get when describing this method of budgeting is,” What about budgeting money to go out for drinks, food, or anything related to entertainment?”. Its simple, if you typically like to go out with your friends or family a couple of times a month or more do some mental math to see how much you spend. You might even notice that your late-night habits of buying $60 dollar rounds of Patron shots for all your friends might need to be toned down a little. When I was in college for example, I used to budget around 100 dollars to go out on the weekends. So, on top of my 400-dollar a month grocery, gas and other day to day expenses I would add another 100 dollars to budget for my weekend entertainment. So typically, I would transfer 500 dollars from my bank account B to my bank account A on a monthly basis to get me through a normal month.
How about unforeseeable expenses such as getting your car fixed, fixing something in your house, etc? In regards to these events, this is the only time where you would use your debit card attached to bank account B.
If you have any questions regarding this article, please comment below.