In my post The Half Payment Method, I explained why this method saved our finances and changed our lives forever. Basically, you add all your fixed expenses and split the money equally between your paycheck periods and then, you always have the money availalble when you need to make those payments.
When we started this method, we were using cash envelopes. I will explain more about them in another post really soon. The cash envelopes were good but we were always worried about either losing the envelopes or leaving them at home when we needed. So, we decided to start depositing the money in different banking accounts. It is the best thing we ever did!!!
We named all the banking accounts with their purpose and the money that we must deposit on each paycheck. For example, in our current budget, we have $600 per month for groceries (we live in Hawaii so everything is more expensive). That account is named “Groceries $300”. When my check hits the banking account, we transfer $300 to that account. When we go to the grocery store, we log into the bank app, know how much we have to shop and we pay with our debit card.
Since it would be crazy to have card for each account, we only have 2 debit cards. One for the grocery account and one for the main checking account where we receive our direct deposits. If we need to buy anything or pay any bill, we transfer the money to that checkings account before making the payment and voila!
Ok, so now you know how it works but you may ask why do we have so many accounts? For us, it is easier to have several accounts with specific names. So, I will share what we name our accounts.
- Our Checking Account- In this account, we receive the EFT deposit from our employers. It is the only account that we have debit cards from (in addition to the groceries account).
- Clothing and Odd Expenses- We don’t buy a lots of clothes but we like to have a fund to have money available when we do need to buy them.
- Internet, cellphones and insurance- All our fixed expenses go into this account.
- Mortgage- This our only debt at the time. We deposit our monthly payment plus anything extra that we receive to apply to the principal.
- Donations and gifts
- Going and Dining Out
- Spending Money
- Miss A’s Swimming, Girl Scouts and Supplies- We split her dues for the year into monthly deposits. When it is time to pay them, we just withdraw the money.
- Gas and Auto Maintenance
- Christmas Club
- Our Next Vacation
- Our Dream Home- Since Mr. B is serving Active Duty right now, we don’t plan to buy another property for now so we are saving for a nice deposit once we retire and settle.
- Our Future- This is how we name our Roth IRA’s.
- Miss A’s 529- College Education Account
- Our Next Car- Instead of making monthly payments to a bank on an auto loan, we pay ourselves a fixed amount to have money available is something happens or when we want to upgrade. I will explain more in a post soon.
- Our Emergency Fund
What do you think about our method? Do you have any recommendations for accounts that you think we should add?