Frontloading: Managing Cash Flow (And the accounts I use)

My spending plan spreadsheet shows me how much the checking account needs to receive to cover the next month’s spending plan. This varies a bit, but has lately been around $3,000. If I go over the spending plan (cough on clothes or condo projects), then that amount goes up. Since I graduated from college (until my current job), I was salaried and paid monthly basically the same amount every month, except when I got a raise, I finished paying Social Security tax for the year, or when I got a bonus (at which that amount would appear in my brokerage account and I would transfer it directly to savings since my normal paychecks covered my spending entirely).

The process!

A sample month in 2014 would look like this:

  1. My full paycheck ($5,000 and change) would be direct deposited into my checking account on the last business day of the month.
  2. The spending plan amount would stay in my checking account (somewhere around $3,000).
  3. The remaining amount would be transferred somewhere else, e.g. to the mortgage, to investments, or to a savings account.

This year, on the other hand? My direct deposit this year was/will be enough to cover my next month’s spending plan only 6 out of 12 months. The amount of money direct deposited to my checking account has varied a lot:

  • one month of under $3,000, not quite enough to cover the next month’s spending plan (last month at the old job)
  • one month of $0 (while between jobs)
  • two months of five figures (first month at the new job and a later month where I sold an ESPP purchase)
  • four months of under $500 (while frontloading the pre-tax/after-tax 401(k))
  • one month of $5,000 and change (while frontloading the after-tax 401(k) and selling an ESPP purchase)
  • one month of $6,000 and change
  • two months of $7,000 and change (when I’m done paying Social Security tax and contributing to retirement accounts)

Direct deposit amounts in 2016 will also be sporadic, though I will be able to cover the next month’s spending plan 9 out of 12 months and my average monthly direct deposit will be $2,000 higher than in 2015.

My newly adopted system smooths out all of these moments. Right now, I have four accounts at Ally:

  1. General savings (or what some people would call their emergency fund), which has a target amount of $30,000 (increased to $35,500 around December-March to cover my Roth IRA contribution)
  2. Grad school savings, which has a target amount of the remaining tuition and books
  3. Next month fund, which has a recurring target amount of $3,000 or what the spending plan amount for the next month is
  4. Donations

All income gets sent to the “Next month fund” savings account, including ESPP proceeds, direct deposit from my job, bonuses, tuition reimbursements, and credit card rewards (dividends from investments are automatically reinvested at the moment) and then a series of transfers keeps the money sorted out properly between these accounts. On the last pay day of the month, I take a few minutes to put the data from my pay stub into my tax spreadsheet (which also tells me how much should go to donations) and:

  1. I transfer 1% of my gross pay for that month (currently ~$100) to the donations account.
  2. I set up a transfer for the 1st of the next month to transfer the spending plan money from the “Next month fund” to my primary checking account and if there isn’t enough money in there, I borrow it from the “General savings” account.
  3. I use any money left in the “Next month fund” after the above two transfers for the savings snowball! In priority order that is: keeping the general savings account above the target amount, keeping the grad school savings account at the target amount, paying extra principal on the mortgage, and then lastly, taxable investments.

I’ve debated direct depositing my paycheck to my general savings account and then when the balance surpasses its target, transferring money elsewhere. I don’t like this option because then I need to withdraw money from savings in order to pay my expenses every month instead of just in the months where my direct deposits don’t cover my expenses and I have a disposition to not withdrawing money from savings.

You’ll notice that I don’t like the term emergency fund. I have always labeled my “first” savings account “general savings” and hadn’t heard of the concept of an emergency fund until I started reading personal finance blogs a few years ago. I have never had a concern with borrowing from my savings account because I’ve always paid myself back. I see the amount in this savings account simply as a cash buffer to weather whatever storm comes my way, despite the fact that most months, my cash flow can cover most “emergencies”.

The central point of my financial management is my primary checking account, through a credit union offering no monthly fees with no minimums. I bought a check book on the account years ago before I realized that other banks (i.e. Schwab, Fidelity) would give you a check book for free just for opening an account. ATM withdrawals at most credit unions are free and easy to find, as is a branch, somewhat. My boyfriend has his checking account with the same credit union and we have it set up so that we can transfer money to/from each other without seeing the other’s accounts, though that is much less necessary now that Square Cash is so easy to use. I have occasionally debated changing the institution that has my primary checking account (probably to Schwab), but this one meets enough of my requirements and has everything set up to go through it at this point that it doesn’t seem worthwhile to switch. This checking account is a “rewards” one in that they’ll pay me X% interest (marginally better than Ally’s) on the first $Y,000 in the account if I use my debit card at least Z times in a month, which I’ve taken advantage of on the months where I’ve bought lunch at work.

I have two other checking accounts: Schwab and Fidelity. I have the Schwab one because they reimburse ATM fees worldwide and have no foreign transaction fees. I usually keep somewhere around $200-500 in that account. It was super useful when I went to Japan! I didn’t have to worry about how much to take out at a time. I have the Fidelity checking account to receive the cashback from my Fidelity American Express card.

All of my bills autopay to either a credit card (cell phone) or primary checking account (mortgage, HOA dues, property taxes). My credit cards are all on autopay out of my primary checking account. All non-bills go on credit cards and those are accounted for in my spending plan spreadsheet at the time of the spend.

Other accounts: I have my Roth IRA and taxable investment account at Vanguard. I have a brokerage account wherever my employer(s) have opened one up for me, for the sole purpose of receiving their Restricted Stock Units (RSUs). I have a mortgage loan. I have my 401(k) where my employer opened it up for me. I have a Health Savings Account (HSA) through my credit union for a higher interest rate, as well as the one opened by my employer.


19 thoughts on “Frontloading: Managing Cash Flow (And the accounts I use)

  1. Wow – so many accounts! I’ve tried to consolidate over the years, because having so many accounts was stressful to manage to make sure I knew what was happening in each all the time. That’s not so much an issue anymore with Personal Capital, but I still try to consolidate my accounts as much as possible. Therefore I have rolled over my HSA accounts when I changed jobs, and luckily my employer’s 401k is with Vanguard so my brokerage account and IRA are there as well which is nice. I don’t have quite the system in place as yourself to manage my cash flow, but basically I just make sure I have enough in checking to cover any cash outflow over the next 30 days, and everything else gets tossed in my IRA or brokerage account as I consider my “emergency fund” fully funded. I also get paid biweekly, so usually 2 times out of the year a paycheck can basically 100% go into investments. Everyone is different and your system seems to be doing quite fine for yourself :)

    • I’ve really tried to consolidate too. (I know you don’t believe me!) I don’t mind having the four savings accounts since they’re all at Ally and I can do instant transfers between them.

      I used a system like yours many years ago and it worked great! I find now though with more expenses, it’s really hard to predict what I need for the next 30 days and I really like always having enough cash on hand in my checking account to pay down all credit card balances.

  2. Your monthly income varies, my monthly expenses vary. For example, I pay insurance yearly, so I get a big hit in a single month. This also happens for HOA fees and several other things like that.

    I’m retired, so I pull just the amount I need each month from my investment account, so it makes those variable amounts pretty easy to work with. But it sounds like you have a system that works well for you.

    Steve –

    • My monthly expenses vary too, but I use my spending plan to even them out a bit more and to help predict things a bit better. I’ve realized that I’m terrible at predicting monthly how much I will spend, but pretty good at predicting it over the course of the year, so I budget that way. I set aside 1/12 of the annual property tax and insurance bill each month, for example. So even though I don’t pay them every month, I still budget for that! Pulling the amount you need from your investment account sounds like a great plan if you’re retired! Thanks for stopping by!

  3. Remember how I moved a bunch of money into checking so I wouldn’t feel bad about spending it while on leave from my job? And I’d decided how much to move by calculating how much above and beyond normal spending we’d be spending over the 12 months? The checking account is down to 3K now. We have spent crazy amounts since getting here. Part of that though is business expenses that will be reimbursed, but to a different account (since it is easier to deposit checks here to Wells Fargo than to our local credit union back home).

    Still, it is insane how much we’ve spent. Rent on our house should kick in next month, and my half paycheck should kick in the month after that. So hopefully we’ll be closer to spending at our income by October.

    • Ugh, that sound really stressful! Is it possible that you are spending more now, but will be spending less later on in the year? I feel like my expenses were much higher in the first half of the year than they have been in the second half.

      I’m really surprised at how okay I am with my direct deposits not covering my expenses – that was one of my main concerns with considering front loading in the past and I’m really glad I decided to give it a shot!

      • we will definitely be spending less as the year goes on and we’ll be having higher income as well, and there’s still a big cushion in savings, but boy did transferring a big lump sum from savings to checking work well to get us to loosen up on spending

        We’re back to not eating out so much. (Though I’ll be eating out at a reimbursable business trip this week… and next week… etc.)

  4. It sounds like you’ve definitely got a solid plan here, Leigh!
    Accounting for emergencies is so important and you never know when something might crop up.

  5. Love your approach. It’s a lot like our current pay ourselves first strategy and our future sequestered account approach for retirement. One thing interesting is how you have several checking accounts. We have one joint and individual checking accounts, all with USAA, but no additional. We get ATM fees rebated and no other fees whatsoever, including no foreign withdrawal or transaction fees, which we love. But wonder if you think there’s a benefit to be had with more accounts?

    • I’ve actually had more checking accounts – this is consolidated! ;) I can’t eliminate the Fidelity checking account so long as I have the Fidelity American Express credit card. I would ideally probably consolidate to the Schwab checking since it offers more benefits than my credit union one. The credit union only reimburses ATM fees if I use my debit card the N times in a month, whereas Schwab reimburses them anywhere in the world and has no foreign transaction fees… It’s nice having a local branch sometimes, you know? And I also have everything hooked up to the credit union checking account at this point, so inertia? I do feel a bit safer withdrawing cash in a foreign country when nothing else is going on with that account AND there’s a limited amount of money in it.

      • Good point — We keep having to switch credit card numbers because of fraudulent charges, so your point about having a bank card for foreign travel with limited funds attached to it is a great one. Thanks!

  6. You ever tried YNAB?
    When used properly, it eliminates your need to keep a separate account to keep track of savings for specific things. It doesn’t matter where the money is, it’s accounted for.

    There’s no way that I could maintain my currently 8 active checking accounts and another 5 inactive but still open accounts without YNAB. Particularly because I churn bank account signup bonuses (I’e netted $2000 in bank account bonuses so far this year, and i have another $750 pending).

    I’ve definitely had more than 8 active checking accounts at my peak.

    • I haven’t tried YNAB, mostly because the software I wrote/use already requires manual entry and I don’t want to do that twice. I actually like having separate Ally accounts for some things because I can see them without having to check my software. I currently have four savings accounts: 1) for general savings (what I call my emergency fund), 2) for my estimated remaining grad school costs, 3) for charitable donations (mostly because I didn’t like keeping it in my normal budget), and 4) for direct deposits. I’m still investigating how i feel about using a savings account for direct deposit.

      I’m about to “churn” my savings with my existing credit union though, so I’ll probably end up re-working things slightly and going back to making virtual accounts of my checking account.

      8 active checking accounts! I’m not super huge on churning, mostly for the low $ return. My software definitely helps with the number of accounts I have – it makes it a non-issue really.

      • Oh right that’s how I found your blog, from your comment on EPF about you writing your own.

        What reservations do you have about using a savings account for DD?

        In absolute terms it’s a low return, but as a percent it’s great. And there’s very little effort involved – I typically open them online, then go to my employer’s HR page to change my DD settings. And six months later (the typical length of time you need to keep the account open to avoid early account closure fees) I close the account.

        I’ve typically gotten a 10% return in six months from the bank bonuses after taking into account a minimum balance is usually required to avoid fees (and there have been a few accounts where I had no minimum balance requirement since I was a student!). So a 21% return annualized (not to say that I would get 21% if I kept this account open for a year, but a different investment would need a 21% annual return to get 10% in the first six months). Some are better than others of course.

        If only bank account bonuses were scalable….

        • Heh yep :) Keeping the withdrawals under 6 for the month cuts it a little close sometimes. That’s mostly it. And the return is reasonably low. Although my paychecks are higher these last few months since I’m done contributing to my 401(k), so the return will be a bit higher. It’s been ~$1/month the last few months, though this month it’ll be just over $4. I’m giving it a few more months to see how I feel about it still. I like that it simulates getting paid on the last day of the month like I’m used to.

          I’ve done a few bank bonuses. I’ve just been lazy about finding them… I’m definitely not against moving cash around to get a higher interest rate!

        • Apparently I can’t another reply, but anyways…

          Yeah I totally forgot about the six withdrawals a month restriction there.
          I personally use a rewards checking account for 3.09% APY with Consumers Credit Union ( – there’s 2 CCU’s). But you do have to jump through four hoops. Three are easy. The last one is 12 debit transactions a month. I’ve been automating those with Amex Serve but it’d be silly to get an Amex Serve just to do this.

          I don’t hunt for bank bonuses myself per se. I have the Doctor of Credit blog in my RSS reader though, and his blog posts about a bunch of bank bonuses.
          If you’ve never had a Discover checking account, there’s a $300 signup bonus going on right now (and no minimum deposit required to avoid fees b/c there are none – you just need 2x $250 DD’s to get the bonus):

          And he’s got a list of current ones (though it looks like he may not have updated it this month?):

        • I have a rewards checking account that isn’t as good of a rate as that but I’m finding myself not usually hitting the 12 debit card transactions, which is why I don’t keep that much money in it anymore other than my normal checking account budgeted amount.

          Oooh thanks for the tip about the Doctor of Credit blog!

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