Budgeting Part II: Details and Automation

It occurred to me the oth­er day that I did­n’t real­ly explain how to bud­get in my post about The Basics of Bud­get­ing. Sure, I list­ed some real­ly great tools to help you get start­ed, but I just kind of left it at that. Track­ing your spend­ing is a fab­u­lous first step. You can­not cre­ate a real­is­tic bud­get with­out know­ing where your mon­ey goes first.

So you’ve tracked/logged your spend­ing via Mint or some oth­er soft­ware. Now what?

Make a list of every deb­it and cred­it to hit your account on a reg­u­lar basis. I’m talk­ing about car pay­ments, rent, util­i­ties, inter­net, pay­checks and sav­ings deposits. Don’t for­get to include the day of the month as well. It should look some­thing like this:

Day — Action Item — Amount

5^th: Inter­net -$70
13^th: Util­i­ties -$75
15^th: Pay­day +$1500
15^th: Roth deduc­tion -$450
24^th: Phone bill -$95
30^th: Rent -$1000
31^st: Pay­day +$1500

This is a rough esti­mate of my fixed month­ly expens­es and cred­its. Adding it all up, I should have a cool $1310 left­over at the end of the month.

“But Gwen, what about things like food, gas, insur­ance and vaca­tion money?”

Notice I said fixed costs above. Things like food, gas and vaca­tion mon­ey vary from month to month. This is where Mint comes in handy. It tells me I’ve aver­aged (per month) $380 in food, $100 in gas and vari­able vaca­tion mon­ey. Sub­tract­ing $480 from the $1310 leaves me with $830 for the month.

But.

I’ve got non-month­ly fixed costs as well. I pay my car insur­ance every 6 months. For sim­plic­i­ty’s sake, let’s say it’s $600 for 6 months, which means I need to save at least $100 each month before my bill becomes due. That means I won’t be sur­prised when I all of the sud­den get a $600 bill one month. $830 — $100 is the final total of $730 a month unac­count­ed for, which usu­al­ly goes towards trav­el of some kind or more food. Because I like eat­ing and drink­ing out with new peo­ple as a social activ­i­ty. Once I get a friend group firm­ly estab­lished, then I can start to host more get togeth­ers at my house that cost less.

To keep the num­bers easy, I did­n’t include things like health insur­ance, tax­es or con­tri­bu­tions to my work spon­sored retire­ment accounts. Most­ly because I nev­er see this mon­ey as mine, since it comes out of my pay­check before I get it. I like to pre­tend I only get paid my after tax amount, because if I look at the gross amount I get paid I get real­ly sad.

After you’ve planned out your month, you can start automat­ing your pay­ments. Just about every ser­vice out there offers the option to either sched­ule your pay­ment or auto­mat­i­cal­ly pay it. To sched­ule my pay­ment, I go in to the ser­vice, click pay bill, and then pick a day I’d like to offi­cial­ly pay it on. For instance, my cred­it card bill was due the 27^th, but I sched­uled it to be paid the 24^th instead.

To set­up an account to auto­pay, all you have to do is sched­ule a pay­ment to occur on the same day (or busi­ness day before it) of every month. My rent auto­mat­i­cal­ly comes out of my account two days before the end of the month. Which means, I’ll be pay­ing rent tomor­row for August’s rent.

If you do set up auto­pay, keep a few things in mind. One, have enough mon­ey to cov­er the deb­it in the account. Either set up a trans­fer from anoth­er account auto­mat­i­cal­ly or do it man­u­al­ly a cou­ple of days before hand. Two, make sure you adjust your pay­ment should some­thing change. When my cred­it card account got com­pro­mised, I had to switch my cell phone bill to auto­mat­i­cal­ly bill my oth­er cred­it card.

Anoth­er pit­fall to auto­mat­ic pay­ments is when com­pa­nies keep your busi­ness but shift you to a new account. When I moved, the cable com­pa­ny (insert boos and hiss­es here) closed my first account and opened a new one for my new loca­tion. What I failed to real­ize was my auto­pay was­n’t con­nect­ed to the com­pa­ny, it was con­nect­ed to my account with the com­pa­ny. They opened the new account, but did­n’t set up auto­pay. This meant I missed the first pay­ment at the new place, but caught my mis­take before I missed a sec­ond mon­th’s payment.

The last thing to remem­ber with trans­fers and auto­pay is it often times takes a few days to trans­fer mon­ey between dif­fer­ent insti­tu­tions. I have sav­ing and check­ing accounts with two dif­fer­ent banks, so I have to remem­ber to include the trans­fer time when mak­ing pay­ments. That’s why I make the trans­fers a few days ahead of time so I can be pos­i­tive the mon­ey will be in the account (see point #1).

Let’s take a clos­er look at the month­ly bills with the auto pay and trans­fers set up. I updat­ed the for­mat to include which account is used, so now it’s day of the month, action item, amount and account.

5^th: Inter­net -$70 (on cred­it card)
12^th: trans­fer Roth $ to check­ing account
13^th: Util­i­ties -$75 (on cred­it card)
15^th: Pay­day +$1500 (into Sav­ings I)
15^th: Roth deduc­tion -$450 (from check­ing account)
23^rd: trans­fer CC pay­ment, Roth $ and rent to Sav­ings II
24^th: Phone bill -$95 (on cred­it card)
26^th: CC pay­ment deduct­ed (from Sav­ings II)
28^th: Rent -$1000 (from Sav­ings II)
31^st: Pay­day +$1500 (into Sav­ings I)

So there you have it. This is the nit­ty grit­ty detail of how I pay my bills every month.

What does your bill pay­ing set­up look like?