With my 7 year-old awareness of human biology, I couldn’t understand why all the kids peed first THEN went ot he water fountain.
So during 2nd-grade bathroom breaks, I’d go to the water fountain first while all the other kids went to the bathroom.
I was process-oriented in the womb, so it’s no surprise that I have a system for managing month-to-month cash flow.
Here’s how I actually manage our household finances.
1) LEVERAGED SAVINGS VEHICLES ARE MAXED
Contributions to our 401k’s and HSA’s are maxed out.
2) 4 MONTH EMERGENCY FUND IN ALLY
We keep 4 of our 6-month emergency fund in an Ally high-yield savings account.
4) 3 SEPARATE CHECKING ACCOUNTS
We have one joint account, and two personal accounts (one for each). We auto transfer equal amounts into the joint account at the beginning of each month. Each account holds two months of living expenses – 1 month of spending and 1 month for OVER spending.
3) 1 MONTH EMERGENCY FUND / OVERDRAFT IN SAVINGS
We also have 3 savings accounts (each tied to the 3 checking accounts). We keep 1 month of expenses in each which doubles as the remaining month of emergency fund AND overdraft protection in case we have a REALLY big spending month.
5) 3 CREDIT CARDS
One joint, 2 personal cards for each. Each card is set up with auto payment from the corresponding checking accounts. The autopayment is set up to pay the balance on the due date.
6) MONTHLY TRUE UP
This is where the magic happens. After the auto transfers have been completed to our joint checking, I transfer anything leftover in our individual accounts to our long-term portfolio. This has 3 benefits:
1) it ensures we’re saving the extra money, not spending it
2) it subliminally reduces spending because we’re not sitting on a big wad of cash
3) it gets our money invested ASAP
MY REAL LIFE EXAMPLE
My personal spending budget is $1,000 per month. I can spend that on whatever the heck I want! Ain’t nobody’s bizniz!
So I keep $1,000 in savings/overdraft and $1,000 in checking (2 months of living expenses total).
After I’m paid and the automatic transfer happens to our joint account, I transfer every penny over $2,000 in my checking to our long-term portfolio.
After my personal credit card is paid that month, the $2,000 in checking will get closer to $1,000ish and then I’ll true up again next month.
My goal is to have 2 months of spending as a baseline in my checking/savings.
IT’S SORTA LIKE A BATHROOM BREAK
If I was 7, it’d be kinda like drinking water (cash inflow), retaining what you need (monthly budget) and peeing out the excess (savings).
Too far? (I bet your 7-year-old would think it’s hilarious!)
