I am 27 years old, and I currently have $4.55 in my chequing account. I know what you’re thinking: “Oh, another twenty-something who can’t manage her money.” Actually, I’m the exact opposite. I spend a significant amount of my time managing my money; I just don’t believe that my money should be sitting in a checking account.
Admittedly, I am sort of obsessed with savings accounts. I will not tell you exactly how many accounts I currently have open, but the number is in the double digits. I have even received calls from my bank’s customer agents, wondering why I need to open up so many different accounts. I have a lot of things to save for! My emergency fund, my new car savings, my winter vacation and my retirement savings all require different accounts to keep my money organized. I have a lot of very important savings goals, and I have determined that the best way for me to manage my finances is to move all of my money out of my checking account, the moment I deposit it.
So, how do I survive with no money in my checking account?
First and foremost, I have taken to heart the notion that you need to pay your future self first. This means that you need to put money away for your goals and future plans before you can think about paying outstanding debt and bills. So, each time my paycheck hits my bank, I already know how much of it is going to each of my savings accounts. I transfer these amounts manually, but I recommend automating the process so you don’t have to spend as much time as I do banking online. I enjoy it, but most people don’t. Automated transfers will also cut down the temptation to spend your savings on other things!
Next, there are a few items that must come directly out of my bank’s checking account. Expenses such as mortgage payments, electricity bills, and life insurance cannot be paid using a credit card; they must come directly from a checking account. I have scheduled automatic withdrawals (the day after my payday) to pay off these expenses from my checking account. Automatic transfers can be set up through your bank, or through the individual companies that you pay your bills and premiums to. The automatic withdrawals ensure the money is gone, paying off my necessities, before I even knew it was in my account.
Beyond the automated savings and bill payments, I make every other purchase on my credit card. If I hit the drive-through to get a coffee in the morning (which is rare, because I am focusing on saving), I pay the $2.00 on my credit card. As a bonus, this strategy allows you to accumulate tons of credit card points! But I should add a disclaimer: If you decide to try this method with your own day-to-day expenses, you need to be sure that you can control your credit card spending. I have set limits for myself, and I check my card regularly to make sure I have not gone over my self-imposed limit.
When my credit card bill is due, I transfer my card’s outstanding balance to my bank’s line of credit. A line of credit is different than a credit card; it’s essentially a loan with a fixed limit and interest rate, available whenever you need it. Lines of credit generally have repayment terms that are much more flexible than traditional loans. Depending on the specific line of credit’s terms, a minimum repayment amount may be required each month (much like a credit card), but this amount is often lower than regular loan payments. Repayments can be completed using online banking, by phone, or in person at the bank. Most banks have convenient applications, available online, to apply for a line of credit. Alternatively, you can phone your bank’s customer service line, or make an appointment to apply in person.
You might be questioning why I transfer my credit card balance, instead of just paying it off directly. I do this for two reasons: First, there are many months when I have to make large purchases. I don’t always have the money available to pay off these purchases when my credit card bill is due. By transferring my card balance to my line of credit, I will avoid the 19.99% interest on my credit card and will be charged a much lower interest rate through my line of credit. My second reason for transferring my entire card balance to a line of credit is that, in doing so, I reduce the risk of payment errors (especially when I’m dealing with paying off joint credit cards from different accounts).
The last step in my savings strategy is to move the money that is left over from my paycheck (after allocating the predetermined amounts to my savings) to my line of credit, so I can pay down the balance. I complete this transfer using my bank’s online banking system. Even if I have to leave a little balance on my line of credit for a month or two, I am ensuring my savings goals are being met.
In my opinion, the most important part of my finances is reaching my savings goals. The no-money-in-my-checking-account method has helped me save for every goal I have set for myself, and (if you’re a conscious credit card spender) it can help you achieve your goals, too. Happy Saving!
Jodi Paradoski is a full-time accountant and coffee addict who loves animals, taxes, spreadsheets and savings accounts. She recently started her own blog, Economical Girl’s Guide!
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