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    Telling Money Where to Go on a Practical Level

    By admin | August 19, 2008

    I received an e-mail that had a fantastic question that I thought it would be helpful to share my thoughts in a post.

    How do you tell your money where to go, on a very practical level?

    How I tell my money where to go on a practical level…

    First it is VERY different for everyone. I will say how I did it but that is not necessarily the best way for everyone. I have met with people that love using their check book balancer (which is great). I have met with people that have excel spreadsheets out the wazoo. Others use online money managers which are great, as well as Microsoft Money. Oh and the envelope system is fantastic which I recommend as a foundational block that everyone who I meet with should use.
    So needless to say it can look very different for everyone.

    The History (not the practical)
    This is how I have done it. When I was in college and I needed to get out of debt, I was on a tight budget and I absolutely used the envelope system. Just to completely honest it was a little embarrassing but in a weird way I was proud of it. To go out to Wild Wing Cafe with friends and pull out my little envelope and count the money out and then record the purchase with writing on it was such a funny feeling that gave me the opportunity to explain why I was doing what I was doing and giving God the glory.

    At some point in school I stopped using it. I do not remember when or why I stopped but the principles were ingrained in me after 5-6 months of using it so it was no big deal. What I switched to was what I have used up until just recently. Microsoft Money (you can get an old version for like $15-20 of ebay).

    The Groundwork
    The way I utilize this program is this. I create a budget. I spend every dollar on paper before the month began (each month is different and the income is many times different).

    Checking Account
    In Microsoft Money I have my checking account. The checking account is kinda like Romans 11 (all things from it, to it, and through it). Yes, I know this was a dumb joke but regardless. My checking account is at $1,000 always (it may not be $1,000 in the bank) however after all smoke clears (meaning all transactions are posted) it will be at $1,000. The way I do this is: (starting to get more practical)

    I start the month and end the month at $1,000. All my income goes into that account. I either spend that money or I transfer it out to a high interest saving account (more on that in a little bit). Either way every dollar goes somewhere based on what I told it to do.

    Microsoft Money (very practical now)
    Like I said before I either transfer the money to another savings account or I spend it. Well, Microsoft Money helps me keep track of how much I have spent. Basically this is how it works.

    $1,000 - To Start the Month
    + $1,000 - Income that Came in
    $2,000

    My budget will be for $1,000 for that month so I spend it all on paper
    $1,000 - Income

    $250 - Car Savings
    $100 - Insurance
    $100 - Giving
    $100 - Gas
    $250 - Rent
    $150 - Food
    $50 - Miscellaneous
    $1,000

    This is a simple budget but not too far off most people’s. But I break things down into expenses and savings for upcoming purchases. Car Savings and Insurance are savings for upcoming purchases (meaning I will spend that money sometime, just not this month) So I transfer that money to one of my ING Direct accounts. I have several of those with all specific names/purposes.

    So back to my bank account in Microsoft Money

    $2,000 - Bank account balance
    - $250 - for Car (transfered to ING Direct)
    $1,750

    $1,750
    -$100 - for Insurance (transfered to ING Direct)
    $1,650

    My new balance is $1,650 and I have $650 of expenses coming up this month.

    What I do in Microsoft Money is make 5 transactions dated the last day of the month. What Microsoft Money then looks like is it has the checking balance of $1650 then a solid black line for future transactions and I see these five transactions below

    Giving - $100
    Rent - $250
    Gas - $100
    Food - $150
    Misc - $50

    Then there is a balance of $1,000 listed next to the last transaction.

    After I do this, what I practically do (and this works for me however it does not work for everyone). I am around my computer all the time. I have it near me at work, in my down town, I am able to be on and off it a lot. So while I am on it I make a point to go to my online banking every few days and enter in transactions.

    So let’s say I filled up a tank of gas for $40 and ate at 3 places totaling $25. ($65 total of expenses)

    I would enter in those 4 transactions manually (I love entering things in manually because I don’t just spend money and forget about it. If I make irresponsible decisions it is too easy to forget it and do it again whereas I see what I do again it helps hold me accountable).

    Anyway I enter those transactions and now the bank account balance above the solid black line is $1,585

    $1,650 - Bank account balance above solid black line
    - $65 - New expenses
    $1,585

    Now I change my 5 transactions below the solid black line. I change the gas transaction from $100 to $60. Because I have $60 left to spend for that (remember we just spent $40). And then I change the food account from $150 to $125 (because we just spend $25). This is kind of like an electronic envelope system.

    Now the total below the solid black line is still $1,000. I always keep it at this number. All the money goes in and all the money goes back out (to either spending or savings). This has been simple for me. It takes me maybe about 5 minutes a couple times a week to maintain this and I have LOVED it.

    ING Direct Savings Accounts
    I utilize this like it is going out of style. I explained above how I manage my “expenses” but let me take a minute to explain how I do my savings. In ING Direct I have 9 different savings accounts and they all have a nickname. “Emergency Fund” , “Car Replacement” , “House Downpayment” , “Gifts” , “Car Insurance” , “Vacation” , etc.

    This is a very similar to the idea of an envelope system as well just electronically. But within my budget there is money to fund these things. Some months look different but we transfer some amount money on a regular basis from our checking to one of these ING Direct accounts ready for it to be used one day.

    Every dollar we have has a name. I can change their names whenever I want but the key point is that I AM IN CONTROL. It is the only way to do money. This takes about 5 minutes a few times a week to be maintained. Very very worth it.

    Topics: Budgeting, Tracking |

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