13 Jan Personal Budget: Make the Money do the work
So if you’re following along with this short series we’ve looked at preparing for a Personal Budget, and Planning a Budget. And this is where the magic happens: Implementing the Budget! And todays post is going to look at ways that you can make your budget do the work for you.
Yes you read that right. I said the Budget should do the work.
You see most people are perfectly capable of writing out a list of bills and expenses on a sheet of paper and knowing where the money should go. It’s the actual hassle of making the money be in the place it should be, at the right time, that’s the issue. Once you know where the money should be you’re half-way there, then you need to make sure it goes where it should be.
So what does Implementing look like?
Implementing a personal budget is simply developing your own system to make your money go where it should so it is where it should be when you need it.
Like planning a budget there is NO WRONG WAY to implement a budget. Some people get great use out of an actual envelope system and other people just set up a simple system on their electronic banking that does it for them. I am one of the latter.
The absolute secret to this working though is AUTOMATION. Whatever system you choose it should require as little intervention from you as necessary. It should happen automatically. Your money should do the work.
How I make my money do the work?
If you’re serious about implementing a personal budget your two new best friends are:
Direct Debits and
Direct Debit is where someone requests the money from you and its paid automatically. Think Bills! Most bills have a Direct Debit option where they let you set up with your bank account where they take the money automatically.
Where possible I set every bill to Direct Debit. Recently a number of providers have introduced something called ‘Level Pay’. This is where they average out your bill from the year before and split it equally across monthly payments the following year. This means you have no big surprises coming up and your bills stay reasonably similar all year and you don’t get hit with a whopper bill.
I also choose to pay as many annual expenses monthly as possible to spread the load. So things like Property Tax I pay monthly.
Using Direct Debits like this means I can work out exactly how much my bills will cost per month, set up direct debits for that amount, and make sure that amount of money is in my Direct Debit Account at a time. I also leave it a little bit over to make sure if someone sneaks out an early payment I’m not left short somewhere else.
Almost all of my ‘Survive’ payments are run on DD. Mortgage, Utilities, Property tax etc, all come out of this one account. This account is the first account that gets paid every single pay day.
If Direct Debits are Asking, Standing Orders are telling. This is where rather than someone request money from your account automatically, you send the money from your account automatically.
I use standing orders for two things:
The contingency fund, is the account I keep the money for all of the things outlined in the previous post that might happen, or which happen less regularly than bills. This is where I keep some cash for Doctors appointments, Car Servicing, Home repairs, Holidays and all of the other ‘Unpredictable-Predictable’ Life Stuff.
Using the budget template in the previous post, I work out how much all of these things could cost me during the year. I divide it by my number of pay-days and transfer over that amount every pay day.
Some people call it an emergency fund, but its not. We know they’re going to happen and shouldn’t be surprised. Cushion account is also a good name for it.
The second thing I use a Standing Order for is savings. Savings are always the last thing to go when manually doing a budget. There always seems to be somewhere else the money can be spent. So this year I set a small amount and set up a standing order for a savings amount to go directly to my Savings Account every month. I actually include it within my ‘Bills’ account to make sure I give it priority.
You simply cannot over prepare for the future.
How many accounts do I have?
If you were keeping count there you’ve probably figured I have more than one account. My bank hate me and frequently try to get me to close them.
If you are in banking, please don’t mail me explaining why I should have a single account. Like I said earlier, do whatever makes it work and this makes it work for me.
I have three accounts.
- My everyday current account that my wages are paid into
- My Utilities account that I set up all of my direct debits with
- My Contingency account where I keep the cash for the unpredictable-predictable’s.
I then have a separate savings account with the Credit Union that I refuse to put online. That way I can’t be tempted to dip into my savings without walking down and facing Ann! (My credit Union lady!)
When I get paid I make two transfers:
My Direct Debit Transfer
My Contingency transfer
Whatever is left in my account then is mine. I call this my Tappa-Tappa money
Does my Personal Budget system work?
Well honestly it has taken me a good few years to get the system to here and it has worked well for me. I’ve only gotten a handle on the Contingency portion in the last year or two. But yes, my Personal Budget system is working for me.
The best part is the contingency fund. I had a boiler give up on me during the summer and having a cushion to get that fixed without hitting the credit card was super helpful.
I also don’t feel hammered when I book a holiday or pay the car tax. The fund never ‘fills’ if that make sense because there is always something to be paid out of it. Just usually at different times of the year. I don’t have to worry about going to the doctor because I already have some money put aside for that.
Also seeing my savings grow regularly has been an amazing bonus. Like I said it’s only a small amount but it’s a really good feeling to have it to one side should I need it.
Weirdly, because my actual current account empties so quickly it took me a while to not feel poor at payday. I soon realised that truly that was the actual amount of spending money I had, whether I liked it or not and have been doing some work on cutting my cloth to fit my, whatever that saying is! Measure? Is it measure? Live within my means!
How you can make your money work for you
I hope you found my system useful and you have taken some ideas from it. If you’re interested in implementing your personal budget, here are the first three steps I would recommend:
1. Decide where your Utility Money and your Contingency money are going to be housed. Are you going to have a separate account? Are you going to keep actual cash in envelopes? Do you have a joint account with a partner you can use? Make a decision and stick to it.
2. Once you know where the Utility Money will be, contact all of your providers and set up Direct Debits from that account. Ask if the have Level Pay or Flat Pay options to ease the load.
3. Decide where your Savings are going, if you’re like me out of sight is out of mind, so maybe a new account or a Credit Union account. Pick an amount, maybe only a tenner to start, and set up a Standing Order.
If you can get these three things set up you will be miles along the way to implementing a system.
And if you are wondering why I chose setting up a savings account over a contingency account, well I’ll talk about savings another day, but essentially I think they’re crucial.
You cannot over-prepare for the future.
So thats my own system and my top 3 steps for you setting up your own system at home. I hope it helps and as always I love to hear your comments and questions below.
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