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).
A sample month in 2014 would look like this:
- My full paycheck ($5,000 and change) would be direct deposited into my checking account on the last business day of the month.
- The spending plan amount would stay in my checking account (somewhere around $3,000).
- 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:
- 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)
- Grad school savings, which has a target amount of the remaining tuition and books
- Next month fund, which has a recurring target amount of $3,000 or what the spending plan amount for the next month is
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:
- I transfer 1% of my gross pay for that month (currently ~$100) to the donations account.
- 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.
- 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.