A conversation with my brother-in-law the other day made me realize that we bank very differently, so I thought I’d share my general methods in the hope that someone may find them helpful.
For starters, we have three main accounts – a checking account, a savings account, and a money market account. The money market account is our emergency savings, though I am in the process of increasing our interest earnings by putting some of it into a 6-month CD ladder. For purposes of this discussion, we’ll mainly focus on the checking and savings accounts. Here’s what an average month looks like:
Our paychecks are deposited into the savings account. We have five fixed monthly payments deducted from the savings account each month. I figure out how much we will need in our checking account to pay the rest of the bills that month, then transfer that amount to our checking account. My thinking behind this is that our checking account doesn’t earn interest (and interest on checking accounts tend to be low anyway), so it doesn’t make sense to leave “extra” money in the account. I do, however, generally overestimate the month’s expenses so that there is always a cushion for unexpected or unpredictable bills, like using our home protection plan. I am also one of those annoying people who balances her checkbook to the penny, so this system works well for me.
In addition to the amount transferred to our checking account, I transfer a fixed amount to our money market account. This is in keeping with the “pay yourself first” philosophy that is so important to growing our net worth.
I have managed to reduce the number of checks I write each month by paying as many bills as possible with a credit card, either on the phone or online, since the card earns us miles (that trip to Hawaii last month was free and Alex even had his own seat). I also just signed up for online banking and bill pay, which should further reduce, if not practically eliminate, the number of checks I write each month. I like the idea of saving money on stamps and checks, and once I’ve gone through a cycle of bills, it should only take me a few minutes to pay a bunch of bills at once.