Subscribe

A smart system to track your money

Debt accumulation can be caused by a variety of life factors. One of the primary factors is an inability to picture the flow of your income and expenses. This system can help.

  • close
    In this July 10, 2015 photo, Jill Rosales, married to Ernie Rosales, works in the kitchen of their home in Temecula, Calif. "Neither of us really likes debt," she said. "But to some degree in the United States, it's just a part of living here. There's some debt that you have to take on to get ahead."
    Chris Carlson/AP/File
    View Caption
  • About video ads
    View Caption
of

Part of the reason we accumulate debt is that there are so many distractions in our lives — things we want to buy but don’t need. But we also ring up debt because we simply don’t understand the flow of our income and expenses, so we can’t accurately estimate how much money we have available to spend.

I’ve struggled with this myself. A few years ago, I put in place a “Money Flow” system to help my family track our spending. You may have heard of a system like this before, but follow along on this tour, because it really works.

Putting the pieces in place

1. Set up two free checking accounts:
  • One to pay fixed expenses (such as the mortgage, car payments and utility bills).
  • One to pay variable expenses (groceries, gas, clothing and so on).
2. Set up a high-yield online savings account.

We call this our “curveball” account. It’s an emergency fund for use when life throws us curveballs — large medical bills, a job loss or reduction in income, major home repairs, that kind of thing.

Recommended: Top ten highest rated CEOs of 2015 are not the ones you would expect
3. Make a plan for big-ticket items.

My husband and I agreed that we would use one family credit card for large purchases, such as airline tickets and hotel stays. We still have our separate credit cards — it’s wise to keep your own credit cards to maintain your credit score and credit history. Using them once or twice a year should be sufficient. And don’t close those cards because it will eliminate credit history you’ve accumulated and affect your overall credit score.

Implementing the system

1. Draw up a budget for fixed and variable expenses.

Add up how much you need in each category. This will be your guideline for how much should be in each of your checking accounts.

Fixed expenses might include:

  • Rent or mortgage payment
  • Property taxes
  • Utilities (gas, electric, water, etc.)
  • Home, auto and umbrella insurance
  • Life, disability and long-term-care insurance premiums
  • Health insurance premiums (if not taken out of your paycheck)
  • Cable TV, Internet, phone and cellphone
  • Gym or yoga memberships
  • Debt payments (credit cards, student loans, car loans, personal loans, etc.)
  • Savings (yes, this is an expense — pay yourself first!)

Variable expenses might include:

  • Groceries
  • Eating out
  • Gas
  • Clothing/shoes
  • Personal services (haircuts, doctor visit copays, etc.)
  • Entertainment
2. Distribute money to the accounts.

When your paycheck comes in, allocate the designated amounts into each checking account based on the budget you created. The sum earmarked for the curveball account can go there directly.

3. Pay fixed costs directly.

All bills are paid automatically from our fixed-expenses account. We do not have to write any checks, and no debit card is necessary. This account has a cushion of a few hundred extra dollars in case a bill shows up unexpectedly or before we have a chance to replenish the account.

4. Pay variable expenses from the second account.

This account should have a debit card, which you can use for purchases.

5. Link the curveball account to either checking account.

If an emergency arises, you can transfer funds within 24 to 48 hours. You can then access the money with a check or debit card.

Realizing the benefits

Once I implemented this system, the process of tracking expenses wasn’t so cumbersome anymore. Separating expenses into fixed and variable categories meant I didn’t have to worry constantly about checking account balances. Having fewer transactions in each account also made it easier to see the bigger picture of our spending.

Every family’s finances are different, of course. Feel free to customize my system as necessary. The point is to get — and keep — a grasp on the flow of your money. If you know exactly what’s coming in and going out, you can’t be surprised by debt.

This article first appeared at NerdWallet.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

About these ads
Sponsored Content by LockerDome
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK