It is 7.15 AM on Saturday morning and I am doing my weekly check on my finances. Yesterday was payday and my bi-weekly salary hit my checking account. I let the transaction settle from the previous day before making any money-related moves and transfers.
I use a simple spreadsheet where I enter the available amount of money and then deduct the different payments. I have different checking accounts, one specifically used for mortgage and other housing-related payments. I do my own escrow saving for property taxes and homeowners insurance as well as utilities, HOA, and housing-related maintenance services like pest control.
The Saturday after payday I pay down my credit cards and move money into savings and investment accounts. I do not carry any credit card debt, but I also pay the balance down twice a month so that the actual amount reported to the different credit bureaus is usually low before paying it off completely. I found this to be beneficial in regards to boosting my credit score. A low ratio between available credit and used credit makes a big difference to keep my credit score above 800.
After making the payments against my credit cards (I have three that I use – more on that later) I make transfers into my savings and investment accounts as well as allocate money towards my son’s 529 college saving plan. I use a high-yield savings account for my emergency fund and slowly build it up again after my divorce from earlier this year. I admit I am nowhere close to feeling confident in case I would lose my job. I am struggling to put money into the savings account at a rate high enough to build that confidence. Quite a few unexpected expenses have made it difficult to reach my monthly savings goals.
Money for investments is allocated and I initiate the transfer from my Fidelity account. For now, I am not entering any trades as I feel the market is overvalued, and with my emergency fund not where I want it, I will take a conservative route here. Who knows how this whole pandemic will play out.
One by one I enter the numbers into my spreadsheet and shift money around. I also keep a liquid reserve in my checking account. Usually, that amount is around $400 which can be used for ATM withdrawals or other unexpected expenses that require cash or check payments. I also leave money allocated for my gardener. He charges me $80 per month for his services and I usually give him a check for that amount.
A big monthly expense for me is spousal support. Since the divorce has become official I pay $1,300.00 per month in spousal support to my ex-wife. She moved ~6,000 miles away (Germany), but I transfer the money in two badges of $650 into her US checking account. I use ZellePay for this transfer. I do not really like Zelle, but it is the only tool I really have available. It feels complicated how Zelle works and does not give me much control (at least that is how it feels for me). Our son lives with me and I pay all his expenses. I barely see any money from my ex-wife coming in for him – not even recurring allowance nor does she put any money into his 529 College Savings account. I find this very sad, but I decided not to waste effort on complaining. It is what it is and I will make it work. This is the situation for the next 3 years and so I am directing my effort into building up side-income. But it is stressful to see how tight it is right now between expenses and income. There is not much room to breathe and that feels a bit scary.
I go through my finances every week to make corrections when needed. As I do not use an official budget, this gives me visibility into everything and I can adjust my spending behavior accordingly. Ideally, I want to get into a better state with my spending behavior, but as mentioned, the last few months always had a significant amount of unexpected expenses that have made it challenging to save more money.
But having the discipline to review my finances weekly is an important tool for me. If I would not do it that way, I would have a lot more surprises that would have the potential to stress me out. I have enough going on with a busy and stressful job and my personal life (outside of my financials).
Automation and Financial Discipline
While I check my finances weekly I have also automation place so that I do not miss any payments by accident. Nothing worse than missing a payment that then gets reported to one of the major credit agencies.
All my credit card accounts are set to autopay on the money due-date for the account. That way I will never run the risk of having one of my credit card accounts go unpaid. This happened to me once many years ago on a card that I almost never use. As a matter of fact, the card receives one charge every 3 years. I had this subscription payment hit the card and since I did not use the card at all, I never checked it really. I always assumed it would have a zero balance. And I never set up auto-payment for the card either – why would I, right?! Well, at one point I received a letter from my bank (US Bank) telling me about late fees and all that good stuff. In a panic, I checked the account and sure enough there it was: my very first ever late fee and credit card interest fee charge due to a $15 magazine subscription that had itself auto-renewed every 3 years. Needless to say, this happened once and never again.
If my financial discipline would have been strong enough and if I would have paid attention to detail this would have never happened. That $15 subscription renewal cost me an extra $42 thanks to the courtesy of my bank and my ignorance.
Since then I keep tracking separately which recurring charges I have, when (month) they hit what card or account. In addition, I moved almost all subscription fees to only one credit card and never use that card for day to day spending. This keeps the card from being at risk to credit card fraud. It is also easier when it comes to updating credit card information at the different places. The credit card has a 4-year expiration date. Once every 4 years, I need to go through all the different subscriptions to update the payment information. In a concentrated effort at that time, I knock it all out in an hour or so. Easy peasy if you ask me.
But what about the checking account being hit with auto-payments?
As mentioned earlier I only keep a minor liquidity reserve on my checking account and that might not be enough to cover a credit card auto-payment coming through. Chase, my bank offers overdraft protection for my checking account. I have a savings account at chase where I hold $1,500 for these types of emergencies. The money does not earn any interest really as Chase is really skimpy on that side of things. At one point I need to figure out a better system, but for the moment this works.
Emergency Fund Ladder
It also gives you a good glimpse into how my finances are structured for emergencies. I use a 4-level type of system. You could also describe it as a ladder system.
Level 1 = Chase Checking Account with small amount of cash for liquidity + overdraft protection
Level 2 = Chase Savings account with $1,500 for emergencies and overdraft protection
Level 3 = AMEX Personal Savings – high-yield savings account for a cash-like emergency fund
Level 4 = Fidelity taxable investment account
From there I could still tap into my credit cards before liquidating other financial assets to cover an emergency. I think there are very few financial emergencies in life where one would need immediate, “this minute” access to a large amount of cash, and my emergency fund ladder reflects that. This system works for me and I highly recommend that you look at something similar.
I wish Chase would allow me to create sub-accounts as it would allow me better to allocate money to certain areas – very similar to the well-known envelope budgeting system. There are a few other things I do not necessarily like about Chase and once I have more time available I would like to look at other types of banks. I heard about N26 banking and hope that these type of banks drive innovation into this industry. Banking in the US is so far behind when it comes to technology. It is worth taking a peek over the pond to look into how banks in Europe operating. Our ACH system is just so complicated and feels so 1990s compared to how banks inside the European Union are operating.
The envelope budgeting system, promoted by Dave Ramsey and many others has some advantages and some limitations. I would only use those pieces that help to better manage my finances and dollar allocations for certain areas.
So, to sum it all up one more time. Financial discipline is critical not just for financial independence, but in general for life. Most weeks my Saturday starts pretty structured where I get up at around 5.15 AM and walk the dog for about an hour before having breakfast. From there the morning merges into my financial discipline exercise to review all accounts and initiate money transfers and actions. I also check all credit card transactions for irregularities in case someone stole my credit card information. This whole financial discipline process takes about 15-30 minutes and gets me into a very focused state. I often use this focused state and energy to get right into working on my side-business endeavors and get a lot of ground covered. At 10.00 AM I take a break, wake up my 15-year old teenager and help him with breakfast.
There you have it. Financial discipline and how I have developed financial habits that keep me organized and hopefully efficient. I would like to hear how you are managing your finances. If you have time, please leave a comment below and I will happily engage in a discussion with you.
Credits: Photos by unsplash.com