Thursday, August 21, 2008

Budgeting system #3 - let the bank manage your envelopes

I used to think that I had the great financial mind in my family.  Now I know that it's not me --my brother is clearly a financial genius.

My brother and his wife recently explained to me the budgeting system that they invented for themselves.  It's incredible.  If there was a Nobel Prize for budgeting systems, this one would be a pretty solid candidate.

It works very much like the envelope system described two days ago, but with a technological twist that means you don't need to make all of your purchases with cash.  You will need an internet friendly bank and a cell phone or another device capable of accessing the internet.

As with any budget, first you create your categories and determine how much money to allocate for each one.  Then instead of envelopes, you open a checking or savings account for each category.  In addition, you should have a "main" checking account.  You could easily have more then 10 checking accounts - but don't worry there is a simple way to manage these accounts and you will only actually write checks and pay bills out of your main account.  You can think of the other accounts as electronic envelopes.  They are only there to help you budget - not to use like a traditional bank account.

Set up all of your accounts so that whenever you get your paycheck (which will go into your main checking account), the proper amount is automatically transferred into each of your separate accounts.

When you go shopping, you can use your cell phone or Blackberry or whatever to check the balance of each of your budgeted accounts.  When you purchase something,  you can put it on a credit card.  Then, while you are still standing at the cash register, use your phone to transfer the appropriate amount of money from whatever category the purchase falls under into your main checking account.  At the end of the month, you will then have enough money in your main account to pay your bill.

Using this system enables you to know how much you have to spend in every category, prevents you from overspending, and allows you to use whatever payment method you prefer.

Sheer genius for the tech savvy budgeter.

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