The simplest budgeting and personal finance solutions are often the best; they're easier to stick with. Money Magazine recommends a fast way to create a simple budget: open three different accounts to separate savings, fixed expenses and "fun money".Photo by gracey.
The article says you should have your pay divided into three portions and directly deposited into a:
- Savings account: pay yourself first
- Transaction account 1: for regular fixed expenses
- Transaction account 2: for leftover money that you could use as "fun" money or another backup.
By having a second transaction account, you'll be able to tell at a glance how much leftover money you have. (You could have a second savings account instead of the transaction account, so you could deal with just one bank. Rather than divide your pay, you could also instead directly deposit into one account and set up automatic transfers between your accounts.) To make this work, you'll need to plan how much should go into your savings and your fixed expenses account.
Another variation of this concept or a way to expand it is to use sub-savings accounts such as those offered by ING Direct. Many of us have multiple savings goals (a new car and a holiday, for example). To plan for those individually, you can divide your savings account into virtual accounts for each purpose.
The bucket method makes spending and saving very simple, because it divides your money into your budget categories in a very clear way. Do you use a method like this or another system?