The MAD BUDGETEER has done made budgeting and bill paying one whole lot easier. The bookkeeping simplification I first proposed in a scheme to synch credit-card charge cycles with real-world monthly income cycles worked — I’ve now learned that it’s possible and not at all difficult to use my beloved American Express charge card, with its generous kickbacks and its near universal acceptance, between the first of the month (when my actual budget cycle begins) and the 20th (when American Express’s billing cycle ends and a new cycle begins), and then cover the remaining ten or eleven days with cash dollars.
We have established, in response to commenters’ queries, that for reasons that make no sense to real-world humans, American Express will not change its billing cycle on my credit card to match my personal income-dictated budgeting cycle, which runs from the first to the thirty-first. AMEX’s billing cycle runs from the twenty-first to the twentieth. This means that charges made between about the twentieth of a given month and the first of the following month actually amount to loans against the presumed income of the following month.
And between you and me, with the Congress we have in office just now, I presume nothing, certainly not where Social Security and investment drawdowns are concerned. I do not want to borrow against next month’s income to pay this month’s costs. Ergo: the strategy of using cash during the ten-day period when AMEX suggests that I take on exactly that kind of loan.
To my mild surprise, it worked. Last month, instead of an $1100 AMEX bill (the amount budgeted for discretionary spending), I ended up with a $950 bill, having paid the difference with pieces of paper dyed green and marked in various symbolic denominations. Paying with a finite amount of cash, surprisingly (considering my profligate habits), worked to limit the amount of spending that happened during that last ten days of the month.
Very nice.
Somewhere in the sporadic discussion of the proposed simplification of my exotic bookkeeping and budgeting habits, Frugal Scholar wondered why I don’t lump all the little “cookie-jar” bank accounts — the one holding money to pay property taxes, car insurance, homeowner’s insurance, Medicare D insurance, and Medigap insurance; the one holding emergency & diddle-it-away savings; the one to pay month-to-month nondiscretionary and routine discretionary costs — into one single no-nonsense account and just stop worrying about whether there was enough, at any given time, to pay the bills. After all, if one ran into the red, one could always pull some more leaves off the money tree over at Fidelity.
Well, thought I: Well, but…but…but?
But why not?
The cookie-jar approach worked well when I had a job and a healthy income was flowing in. Given that healthy income, I inclined to spend pretty much at will. If I really wanted something, what the hell? I’d just buy it! But to be sure enough money was stashed to cover taxes and other crucial bills, I set up an account at the credit union to hold monthly set-asides that would accumulate, over 12 months, enough to pay the property tax, the car tax, the homeowner’s insurance, and the car insurance, all pretty hefty bills. Each month $445 went into that account. To cover surprise bills and whims I couldn’t live without, I opened a second savings account, which collected $200 a month.
Because I didn’t overspend often, at any given time the diddle-it-away short-term emergency account held $1500 to $2500.
Knowing nothing better at the time I was laid off my job, my solution to the need to cover all the regular bills plus Medigap plus Medicare Part D and to disburse income from coming from not one, not two, not three, but four sources was to open yet another account. Of course! A “pool” account to hold all incoming and from which to disburse monthly allowances for living and annual, semiannual, or quarterly bill-paying.
Now we had…what? checking (1), “pool” (2), tax & insurance (3), emergency savings (4)…yes! FOUR FREAKING BANK ACCOUNTS TO KEEP TRACK OF AND RECONCILE! Plus the monthly American Express bill and the monthly Mastercard bill. And of course the accounts for the S-corp. And the Fidelity statements for the regular IRA and the Roth IRA and the brokerage account and the Vanguard funds. And the statements from Northwestern Mutual for….
To coin a phrase: argh.
The credit-card cycle now adjusted to fit my whim, I finally had time to consider this other craziness. It struck me that, where the credit union is concerned, all that’s really needed is a checking account to hold all incoming cash, from which to disgorge money to pay routine bills, and a savings account to hold funds for small emergencies and indulgences.
So. Today the deed was done.
Because I couldn’t figure out how to actually close close an account at the credit union online, and because one of the four freaking bank accounts was a money market account (effort to maximize “dividends”) — which would incur penalties if its balance dropped below a certain threshold — I took the time to drive to the CU and get an employee to help consolidate accounts and close The Deceased.
Good thing, too: A savings account I thought was the main, root account for the credit union membership was really something else, and the savings account I wanted to close was the actual, real root account. Had I tried to do this on my own, I would’ve made another fine mess of things! Even with the CU’s rep riding herd, moving non-emergency funds into a single account while keeping the emergency finds intact turned into a production.
Naturally.
🙄
Lest you think I’m unique in my craziness, the credit union’s teller remarked that a lot of people set up cookie-jar accounts with names like “tax savings” and “emergency savings” and “new car savings” and “pay off loan.” She said some people have a half-dozen such pokes. Here I thought I’d come up with something original…. 🙂
At any rate, the originality or whatever it was is now gone, and as of today I’ve got two, count-’em, (2) accounts: one to hold all incoming funds and disburse money to pay bills, and one to accrue funds to cover unexpected and short-term emergency expenses. The bottom line in the first account becomes irrelevant, at least until it approaches zero: month-to-month budgets will be tracked exclusively in Excel, with little concern to what’s in the bank.
That’s because what will go into the bank on January 1 will be drawdowns from Fidelity and the S-corp sufficient to cover, when supplemented by Social Security, all routine bills for 2014. Teaching income will also go into that account. In lieu of the $200-a-month stash for extraordinary expenses, that $2400 per annum will stay at Fidelity, and the teaching income — which averages out to $320/month when prorated over a full year — will substitute. This actually gives me about $120 a month more in extra spending money than I have now, while reducing drawdowns from retirement savings.
So. Life is simpler. And life is better. Money-wise, that is.
I am the queen of the cookie-jar accounts 🙂
I have an account in which money goes in every month, to accumulate enough to cover property taxes biannually.
One to hold funds to pay medical costs whenever the powers that be decide something isn’t allowed, or for the deductible which grows every year.
There is an account that gets a deposit every month which is my next car fund.
I’ve got one for “household emergencies” – I know there is a new water heater in my future.
I have a household “stuff” account – moving into an empty house without any furniture, I have an account collecting funds slowly so that when I find something I need for the house, I can use that money – it bought my dining room table, and my media computer.
I have a vacation account – I *love* this account – it lets me save up money *explicitly* earmarked for vacation – not for long term savings or anything else – so I have zero guilt spending it on a trip!
My financial life is way too complicated – sometimes I think I’d like to merge the accounts – but then I realize that I like knowing what each bucket is for, and knowing that I have funds earmarked for that purpose and I either don’t have to worry about it, or – I have to change my spending to fill the bucket.
The thing is, it’s pretty easy to do that in Excel, and you don’t have to reconcile it. Nor do you have to wrestle with a bank or CU over a bunch of different accounts.
Actually, though, this scheme I’ve cooked up will be made possible by the fact that about half my “income” can be pulled down annually from Fidelity and from the S-corp. If I take distributions from savings and the business once a year, in January, then enough to cover taxes, insurance, small surprise expenses, and a little diddle-it-away money will already be in place when those bills come due. There really won’t be any need to accrue money in savings to cover these costs, as one needs to do when one is earning a paycheck. Instead, all that will be necessary is to not spend more than is budgeted for living expenses.
I have 8 or 9 accounts all within ING! They are 92% used for saving for different goals so reconciling is a non-issue, but I love them. I have a vacation fund that gets $20 or $30 a week which I don’t particularly feel but when I go away and can pay off my AMEX Charge it feels FANTASTIC.
I’m pretty obsessive about checking each account every month. Also, the flurry of automatic transfers — which DO need to be reconciled in one’s checking account — had become crazy-making.
That’s a pretty conservative bill for a vacation! 🙂 The ex- and I used to rack up $3,000 bills when we would travel. And that was…what? 25 years ago!
Whew!!!…If this is simplification…kill me now! How disappointing that Amex won’t change the dates on your account….that would have simplified things. I have had nothing but good luck from these folks when I have problems and the 6% back on groceries…stellar. AAAAND…As you mentioned SS and our government…I worry more and more about the….solutions….they are “working on” to make it …”better”….. The more I hear the words “means test” the more apprehensive I become. Let us not forget these are the same folks who brought us Obamacare and then provided no means to use it effectively. And for the gal that heads this program to be too busy to come before Congress to answer the tough questions but have plenty of time to show up as a guest on late night TV…is laughable. Truly we have lost our way as a Nation.
Welp, two accounts is sure a lot better than four!
Yes, I like the AMEX card and its kickbacks, too. Thing is, I found I tended to spend a lot less in the last 10 days of the AMEX cycle, anyway. Just about all discretionary spending goes on that card, and toward the end of the cycle, I would be running low on money.
Interestingly, pushing the start of a given month’s charge frenzy to the first of THAT given month and budgeting X number of dollars to spend during the last 10 days may actually free me from that period of penury at the end of the budget cycle. Now I have plenty budgeted to cover the period between the 1st and the 20th, and the cash budget covers the 20th to the 31st without a lot of penny-pinching.
Yes, the “means test” talk is scary. The minute some bureaucrat sees the amount in my IRAs saved, over the course of a lifetime, to support me through my dotage, which is many times the amount most Americans have in retirement savings, you can be sure they’ll cut my Social Security until I spend it down.
That would happen quickly without the monthly SS check — about 12 or 13 years, assuming no recession occurs.
The fact that few Americans have enough to survive in retirement does not mean that a few hundred thousand bucks will support anyone for 30 years or more. Since women in my family have lived into their mid-90s WITHOUT medical care (they were Christian Scientists), there’s a scary possibility that I’ll live to around 100. Trying to eat and pay medical bills on Social Security alone? Holy God!!!
Really, if they pull a stunt like that, I definitely will move to some other country. You can live pretty well in most of Latin America on the equivalent of a Social Security check.
Ack! I also worry about a means test. I have paid into all of these programs for nearly 30 years already… if I retire comfortably due to my own good decisions, I shouldn’t lose what I’ve put in!
@ Scooze: Well, what we put in to Social Security actually went to help support our parents and grandparents — relieving us of the responsibility of taking them in or covering their living costs ourselves (or…of the guilt trip entailed in visiting them in their encampment under the freeway overpass…).
IMHO, the point is that a promise was made to us: Social Security would be here for us, too, to supplement our savings or our miserably paid part-time work in retirement, so that we will not have to take up residence under the overpass. While of course we all recognize what a politician’s promise is worth, that promise has been institutionalized within the fabric of the U.S. government and of our culture in general, and it should not be broken without at least a generation’s worth of notice.
Funny, you just gave me the best interpretation of Social Security I’ve ever heard! Like most, I feel a little snarky about paying into a program with little guarantee that I’ll ever realize any benefit out of it personally. Yet Social Security has allowed my parents to live into extreme old age comfortably, independently and without any financial help from me. The freedom I’ve enjoyed as a result has been immense. What happens to me in turn will be under my complete control – even if it’s a choice between Fancy Feast and Tender Vittles!
RE: Cookie Jars – in Canada, we have had $1 and $2 coins for years – at the end of the day, you can have a pocket full of them. I put them into an crystal ice bucket. The bucket fills up in about a year, at which point there’s about $1000 in there. That buys a lot of Skittles.
Your “cookie jar” method sounds a bit like an envelope system but you kept the money in an acct instead of using cash. I suspect that this took the place of having line items on a budget spreadsheet. I agree that having it all in one account is more practical. But it will require you to plan ahead and make sure that any large purchases are covered ahead of time. It can be stressful to have the one account when you’re not sure if you have enough to cover all the bills. I used to have that stress (and even had a line of credit attached just in case) until I saved enough of a cash cushion to keep an entire extea months’ expenses in my checking acct.
It is, in a way, like the envelope system, except that it doesn’t sequester specific amounts of cash for day-to-day spending (e.g., X number of dollars for groceries, Y for home improvement junk, etc.). The sequesters are for large hits that I couldn’t possibly pay out of a single month’s income.
In the peace of mind department, that cash cushion is HUGE. I always keep a $1000 cash cushion in checking. Don’t like it when the balance falls to, say, $940 at the end of a given month, but at least I’m not freaking out over bounced transactions!
I’ve never really had a budget, being a natural non-spender. I occasionally jot #s down on an envelope and I know roughly how much I spend. I’m thinking I need to be a bit more formal, getting close to retirement and all.
By the way, I spent last night reading some sonnets by your pal Robert Sidney. Strangely, I’d never read any. I think I’ll read your book next summer.
He wasn’t a bad poet, was he? Especially considering that he couldn’t have spent a large portion of his time at it, since he was pretty busy as governor of Flushing and in his various endeavors to advance himself at Elizabeth’s court. I’d rank him about at the level of Fulke Greville.
Weirdly, one spends less in retirement despite having more time to devote to diddling away one’s money. A system that works while you’re employed probably will continue to work after you go over the wall.
I use SmartyPig to save for regular things–like property taxes, car insurance, and so on. I have regular amounts pulled from my checking account and put into SmartyPig, usually right after a payday. Because I’m paying for these things divided up over the whole year, it’s a small amount of money, and I don’t really notice the absence in my checking account, but when I want to pay the bill, it’s there. (SmartyPig pays 1% interest; my check account pays 2.55%.)