A few years ago Tim suggested that we change the way we do our budget. He suggested that we have two accounts made for our expenses instead of the one we had for our pays to be deposited into – he wanted one made for the ‘bills’ and the other made for ‘spending’. This was genius. There were many times before this that I would forget about an upcoming expense and I’d spend money on something only to find we were short for a bill and had to transfer money from somewhere else. This new system ensures that even if I run our spending account dry – we still have all the money we need for bills, direct debits, groceries and fuel. The important stuff.
We started by sitting down with 6 months worth of bank statements and writing down EVERYTHING that was a regular expense. We were amazed to see that we have 31 regular debits from our account. 31!! We wrote down the cost per week/fortnight/month ranging from our home loan all the way down to gym fees and smaller expenses. We tallied up the cost to us per fortnight – because that is the frequency of our pays and then organised for that exact amount to be taken directly from our pays each fortnight (ask your employer – they should be able to do this for you). Any extra money went into our spending account and from that we purchase things that aren’t budgeted for. When that runs out we have to tighten our belts and wait until the following pay cycle. This system guarantees that we are never short for bills or loans and that we allocate our snowball amount to pay off loans/cards in advance.
We have direct debits set up for EVERYTHING.
· Electricity – we sat down together with our latest electricity account and worked out how much we would need to pay fortnightly for us to have our bill paid before it arrived.
· Rates – just like electricity we direct debit an amount fortnightly so that when the bill arrives it is in credit.
· Gas - we direct debit a small amount of money to our local gas supplier so that when we need to order another cylinder our account is in credit.
· Rego – this is a tricky one because we are unable to pay our bill in advance in Queensland. For that reason I direct debit the amount we need to pay fortnightly (to have our bill paid when it arrives) into a separate account just for the car rego. When the bill arrives I take the money out of that account and pay it.
All our other loans and bills are direct debited from the bank/ the kid’s schools and other companies directly.
We also have a SNOWBALL amount that we pay each fortnight to try and get rid of our credit cards. Once our credit cards have been paid out and are cancelled (what an exciting day that will be!), we will be using this amount to pay another loan and get ahead on it until it is paid out and we move onto the next one. For more information on the snowball concept – visit David Ramsay’s website.
Our weekly grocery allowance also goes into the bills account and because we do online shopping I can make sure that I don’t go over our budgeted amount before I checkout.
Other direct debits – Health/car/home and contents insurance, sponsor child payments, phone bills, union fees etc are taken out of our account automatically.
Sometimes this method can make you feel like you have less money to ‘live’ with because you are using money each fortnight to pay bills in advance, but it does stop unexpected bills arriving in your mailbox and that is a relief in itself.
It has taken Tim and I 7 years to get to the point that we have bills paid off in advance and it will take us many more before we have our credit cards and other loans paid out, but every year we sit down and access where we are at and where we want to be at the end of the year.
We make sure that we still balance ‘getting ahead on cards/loans’ with living and having fun. I am obviously passionate about home décor, I spoil the boys a little too often and we enjoy taking our annual holiday. All of that costs money. Whilst I could put that money towards paying extra into a loan – from time to time it’s important to make memories too, but that’s just my humble opinion.
Everyone’s financial situation is different and obviously budgets have to be made for individual circumstances – but today I thought I’d share a bit about what works for us. Perhaps you might like to try the ‘Bills’ and ‘Spending’ account concept.
The biggest advice I have – cut up the card for your ‘bills’ account! That sure helps!