Does anyone else budget like this?
For many years, I’ve been relying on a budgeting system I came up with that leverages the unlimited free savings accounts offered by my credit union, and the scheduled transfer functionality in their online banking. I have a separate account for every recurring bill. I also have accounts for different types of expenses like groceries, car maintenance, clothing, travel, etc. Altogether I have about 50-60 accounts.
I am salaried so I get a predictable paycheck at predictable intervals. After every paycheck arrives, a flurry of scheduled transfers distribute the money among all the accounts. These accounts are my budget — if I go to the movie theater, for example, I’m not allowed to spend more than what’s in my Activites account. I rely heavily on my online banking app and often pull up the balances to see how much I have to work with. Most of my paycheck is allocated but there’s always a little bit left over in my checking account, which is used for discretionary spending and provides a little cushion if I need it.
Most of my bills are on auto-pay. I have scheduled transfers in place to move the money back into checking when it’s due, just in time for the payment to process.
This system works for me. I like how earmarking and separating out funds for specific purposes as soon as I get paid prevents me from spending that money on other things. I have some annual subscription renewals that I don’t even feel because I set aside a couple bucks every pay period and the money’s there when I need it. I like that this system doesn’t require complex paid software or tedious reconciliation processes. It’s admittedly a chore to make adjustments to anything because the online banking system wasn’t designed for this sort of workflow. Once it’s properly configured, everything is automated and it basically runs itself. I’ve added a couple supporting tools over the years: a spreadsheet to plan the whole budget before I create all the scheduled transfers, and a CLI script that projects upcoming balances for n years so I can optimize my biweekly allocation sizes for their corresponding monthly or annual payments.
I don’t know what to call this system. It’s similar to the old envelope method except I’m using actual bank accounts and never handling cash. I’ve heard that YNAB is similar but haven’t looked into that one. I can’t be the only one managing their money this way! Does this have a name? I’d love to hear resource recommendations for this sort of budget, and please share your own systems and tools as well!
I think that would still be considered “envelope” style budgeting. But in your case, your “envelopes” are the savings accounts.
I do a similar thing, but I use a plain-text accounting tool (specifically hledger), with lots of “virtual accounts”.
So while I have money in ~4 accounts at ~3 different banks, I have it all grouped into a one virtual “Budget” account with many sub-accounts, for each type of expense (envelope style). All of those are “virtual accounts” within hledger, so I can check my actual account balances easily, to make sure I have enough in the relevant accounts for paying off credit cards & rent, etc. All of my paychecks go into a “monthly income” virtual account, and then at the start of each month I distribute that into the “envelope budget virtual accounts.”
I think yours is closer to actual envelope style, since you check before spending that you have the money in the relevant accounts, whereas I reconcile each weekend to update the plaintext hledger file & check the balances for my budgets (but I do use that to inform spending).
Right now, my process is heavily manual, but I do use macros/autocompletes for generating the start of month distributions and easily updating the expenses.
I like hledger because at the end of each month I generate a report that allows me to easily compare that months spending with the average, and for each other month and a total.
I do a smaller-scale version of this, and consider it just a digital version of the envelope method. Current(/checking) accounts I've got one account for household bills, one for household consumables (food, cleaning supplies, etc.), one for anything to do with the dog, and one for my personal expenses (subscriptions, phone, paying off my credit card). Then savings accounts for the house, holidays, future kid, emergency fund, and just unallocated savings.
Misc personal spending goes on my credit card, so I have a credit limit instead of a savings pot for that, but that limit is budgeted for in my personal expenses account, I just don't ever have to look at the personal expenses account (which is good because it's the only one in a different app). The buckets are big enough that I rarely have to revisit anything, and my original spreadsheet calculations all rounded up to multiples of 5 or 10 per pay period so there's always at least a small float.
Edit: probably worth expanding that I only need to really check-in on my credit card bill (which will auto-pay about three weeks after the bill is generated, but I tend to manually pay after a couple of days) and the "household consumables" accounts. Everything else I check in on about once a year to make sure the floats will cover any annual bills from the account, and I'll revisit the spreadsheet calculations then too. I like that it's almost entirely set-and-forget.
I've currently settled on a system where I have my (monthly paycheck - all bills) / 4.2 = my weekly spending. The weekly spending includes anything that someone isn't going to send me a late notice for, so it includes other non-optional things like groceries and gas.
I track this in a spreadsheet where each tab is a week in the year, and I try to be very diligent about going and entering all my spending weekly. I have $100 auto-transfer into savings each week (even though I'm paid monthly) and will sometimes transfer extra if I haven't spent all of my budget for the week. Otherwise it carries over to the next week.
This has struck a comfortable balance for me where :
It's pretty hard to go significantly over budget in a single week without an non-regular large purchase (theater tickets, hotels, etc) which are easy to anticipate and save for.
I have a similar system, though simpler. Just two accounts
Account 1: - gets enough for all of my recurring and auto-paid bills. Not used for anything else, is not accessible by an ATM card. The paying of my bills is protected.
Account 2: - is accessible by an ATM card. Used to buy groceries, gas, things from Amazon, and other disposable income purchases. Any money in it at the end of the month goes into what Vanguard used to call their "Money Market Fund". From there it might go into an investment or retirement vehicle.
I do this but just with a few accounts. 401k doesn't even hit my account of course. One account for recurring monthly bills. Another account for yearly big ticket bills - taxes and insurance (I don't escrow). A few different funds for short and long term saving. And then whatever stays in my checking is just for spending.
A few times a year, I'll sell some company stock and use that for "extras" like travel or home improvement projects after meeting my yearly savings goals.
Nice! How do you keep track of individual bills if the money for them is all in one pot? What happens when a bill is unexpectedly bigger than usual?
Most of my monthly bills are pretty consistent. The only one that varies is electric seasonally by like $60. I just keep a healthy buffer in there in case something is out of wack and it will draw from my main checking account if it overdraws.
It's the same bills that draw from that account every month.
It sounds like you more or less invented your own accounts based version of YNAB. Agreed that it sounds basically identical. The approach is the same, where every dollar (pound, euro, etc) you earn is given a specific job (called zero-based budgeting). YNAB uses categories that are virtual versions of how you’re using accounts, and you assign money to each category.
I used to use my own spreadsheet system that was vaguely similar, with monthly spending goals on different categories and subcategories, but it was a lot of work to maintain and slightly clunky. Plus I moved countries a couple times and it all just got messy so I gave up for a while. I started using YNAB about a year ago and it’s fantastic.
In case anyone is interested in taking a like around, here’s a link for a free trial. There’s a whole community - even if you don’t use their software, they have a lot of useful blog posts, YouTube videos, and podcasts about finances and budgeting more generally.
An interesting system. I have two questions:
How do you pay credit cards? Sounds like it might be a challenge with this system if you use the same credit card for different things. Like let's say one card pays for gas and groceries and restaurants. Which of the savings account pays for the credit card? Or do you use something else entirely?
What happens if one of the accounts does not have enough to pay that bill for that month? Like one of them is unexpectedly higher that month, does it just take it automatically from your checking account or does it cause problems? Or things that may not be the exact same amount each month (say electric bill that might be higher or lower depending on the season and your ac/heating usage).
Great questions!
I have a couple credit cards but I try to use them minimally and pay them off right away. I have a savings account designated for each one. Whenever I use a card, I transfer the amount of the purchase from whatever other account is applicable (groceries, household needs, gas, etc.) into the account for that card. Then when the card payment is due, the money’s set aside for it already. Very rarely do I use my card for purchases I don’t have budget for, but in the past I have set up allocations to set aside a certain amount each paycheck to pay down a card balance over time.
For bills that vary from month to month, like utilities, I like to allocate whatever amount I’d expect to pay in peak times, all year. These accounts usually have a small surplus in them so they can weather the fluctuations. If the surplus grows too much, I pull some out and put it into long-term savings. For other one-off bills that are bigger than expected, those are being paid out of my main checking account. If the standard amount I allocated isn’t enough to cover a bill, the discretionary money I keep in there can usually absorb any overages. My credit union has an “overdraft protection line of credit” that kicks in if I go into the red… so my bills are paid and I can sort things out with the CU after the fact. One nice thing about having all these little accounts is that, in a pinch, I can usually scrape together small amounts from various places if I need to find money fast.
I do this as well but on a much smaller scale. I think I currently have 17 savings accounts for 17 different categories. I get paid every other Wednesday and then within 48 hours, my paycheck is split between these 17 accounts. And then as each bill is due, it is paid from its designated savings account.
Nice! That sounds a lot like my system. Is that all done by recurring scheduled transfers in your online banking? How do you manage it? I’m curious how you came about doing it like this, and if you’ve found any helpful tips or tools along the way?
All initial transfers/deposit are automated/recurring. After I get paid, all transfers are automatically transferred to different accounts.
Then, from there, some are recurring/automated and some are not.
For example, my utilities (water, trash) bill is automatically deducted every month. I know how much to deposit every paycheck to cover the next bill and then on the 14th or the 15th of every month, the city automatically takes their payment. Same goes for mortgage, car insurance, gym, home Internet, bills like that.
Then some other bills are not automated/recurring. For example, my car maintenance/repairs. I deposit $100 per paycheck into my car maintenance account and then when it's time to change oil, the money is withdrawn from that account. And every two years when it's time to change transmission fluid, it's paid from this same account. Amounts, frequency, car shop/dealership, all Vary so this can't be automatic/recurring. The same goes for my vacation account, my house repairs account, my wife's birthday present account, things like that.
I started this back in the late 2000s when the bank I was with offered multiple savings accounts under one user name and you could give those accounts names, so you could have a rent account, a car insurance account, and cell phone bill account. And I thought that was genius and then as I got older and needed more accounts, I just kept opening more and giving each account it's own name.
This works well for me and over the years I've built cushions in each account such that if I were to lose my job, there is enough money in each of these accounts to hold me over for about 3-4 months. Most of these accounts are so automated that if I were to die, most of my bills would get paid for another 3-4 months before my mortgage noticed or before my gym noticed or before my car insurance company noticed (this part is a topic for another time).