Square Peg Revisited: Thanks to PK Sublime

The other day after I held forth about my grand new scheme to force GDU’s dratted biweekly paychecks to fit into monthly bill-paying reality, a reader named PK Sublime commented.

What you do is save ALL your paychecks from month 1 and then pay ALL your bills on the 1st of month 2 that will/are [be] due in month 2. The concept of “living off last month’s income” is a great way to operate…

Uh huh, thought I, dismissively. Nice trick if you can do it.

But it was an idea that would not go away.

Is there, I wondered, a way to build a “pool” of funds from which you could pay your bills each month and that could be replenished every two weeks with your paychecks, independent of billing due dates? Could you pull off such a thing without risk of going broke?

It would take a lot of money, or so I thought: I guessed you’d need at least one month’s worth of pay to “grubstake” this fund. But…but the credit union has granted me check-bouncing protection in the amount of one month’s pay.

Doesn’t count, I continued: that’s debt, not a pool of real money.

But…my state tax refund is less than $200 short of one paycheck. I have plenty in savings to make up that $200. Could I fund such a pool with the amount of one biweekly paycheck, rather than with a whole month’s worth of pay?

An Experiment

I set up a mock account in Quicken and credited it with the amount of one paycheck: about $1500. Then, still in Quicken, I entered a debit to subtract enough from the real-life account from which all my EFTs are made (these pay utilities, the loan, and insurance premiums) to bring the balance down to $500, the emergency-fund “cushion” that resides there as my own first line of check-bouncing protection.

I just paid this month’s credit-card bills, and so the account that holds the money budgeted for credit-card purchases was already at its lowest possible ebb.

Then I “deposited” my July 2 paycheck in the “pool” fund, and immediately distributed the ENTIRE month’s budgets of $840 to the EFT fund and $1,500 to the credit-card fund. Then I entered the pending July 18 paycheck in the pool. No distributions had to come out of that check, because I’d already moved the amounts that would be owing in July to the accounts from which the money would be disbursed. On July 20, I deducted the estimated July utility and insurance payments from the EFT fund. On July 31, I transferred my regular set-asides to monthly savings ($200), to the tax/insurance/car registration “escrow” fund ($300 a month toward annual bills), and to the Renovation Loan Payoff fund ($204 a month)

No sign that any transaction would bounce, anywhere.

Deposit, distribute, disburse, transfer: repeat each month for the rest of 2008 and the first part of 2009. Watch bottom line.

The lowest the pool fund ever fell was to about $680, but it was replenished well before any new bills came due. By December, though, I had “caught up” with one of the so-called “extra” biweekly checks, and this funded the pool solidly enough to guarantee the amount in the collector fund will never fall below $1440.

Migawd! It worked.

The New System

So what we end up with is three credit union accounts that look like this.

How simple is this? It requires only two manual online transfers a month: $840 to the EFT fund and $1,500 to the credit-card fund.

In fact, it’s not quite that easy: at month-end I also have to transfer money to three different savings kitties (one of them at Vanguard). But as a practical matter, the amounts that have to be there to pay bills are now always there at the start of each month, and I don’t have to figure out how to get half the amount, from each bizarrely precessing paycheck, that will be owing into the appropriate place at the time the bills are due. The regular monthly bills pay themselves through EFTs. If I didn’t distrust credit card companies with every fiber of my fibrous little being, I could have those bills automatically paid, too.

Any cash left over in the EFT and the Credit Card accounts (normally one to three hundred dollars remains) can be used to snowflake down the Renovation Loan principal or stashed in savings.

w00t! Thanks, PK Sublime!