How to Deal With Your Finances

Jul
03
2013

frugal-living-piggy-bankI haven’t written about finances in awhile, because these days I barely think about them.

That’s not to say that I don’t have payments and bills and unexpected expenses.  It’s because I have focused hard on getting out of debt for the last 2 years — and these days, I am almost debt-free and worry little about finances. It’s a beautiful thing.

I was having a chat with my friend the other day about budgeting and how incredibly important it is to do each month.  Here is how I deal with my finances these days (you can check out previous posts on budgeting and debt below):

How I Deal with Finances

My finances are on automatic these days.  Each month I tweak here and there, but I don’t think about them too much. Once I am completely out of debt, I really won’t think about them that much.

Here’s what I do:

1. Income is streamed into my checking account automatically. My income is all electronic, so I barely ever deal with checks. When I give private trombone lessons I ask to be paid in cash, which goes directly into my envelope system.

2. Savings & investments are automatically taken from my checking account and paychecks.   If it’s not automatic, I am less likely to invest. I have my investments deducted right when I get paid — I will check every few months and see how my savings and investments have grown.

3. I often make major payments all at once in the beginning of the year. I pay utilities, insurance, and other smaller monthly expenses up front for the year.  This way I don’t worry about the payments each month, and I don’t spend money I might need for these payments.

4. Other bill payments are made automatically. I set up automatic monthly payments on all my other bills. I never worry about paying bills. I just make sure there is enough in my checking account at all times to cover them, and I have them deducted one day after I get paid.

5. I leave a cushion in the checking for unexpected expenses. Once the bills, savings and investments are taken care of, what’s left is basically groceries and other living expenses. My wife keeps track of these expenses very closely, and we leave a cushion just in case we go over budget (we never do anymore).

That’s it!  We set a budget every month that is pretty stable and automate everything.  We are staying pretty frugal and tracking expenses carefully, and that’s fine with us.  We do not have financial stress right now, and it is a wonderful feeling.

Some other posts on budgeting and debt you may enjoy:

How to Reduce Financial Stress

How I Paid off $100,000 in Debt (and How You Can, Too)

How to Get Out of Debt Once and For All

It’s Never Too Late to Get With a Budget

Reflections on a Journey Towards Debt Freedom

Comments

  1. Good pointers! I have to say that after we paid our debt off completely I don’t worry about money (well, apart from the excitement of starting to build some serious wealth) and we have automated all as much as possible. But…
    …it is very important to check direct debits from time to time to make sure that these don’t stay once the service is no longer needed.

    Also, income stops being straight forward once one developes many streams and side hustles.
    maria@moneyprinciple recently posted…When is it time to leave your job?My Profile

  2. Congratulations, Tony, on getting where you are in just two years. It helps to have a spouse that is on board and supportive! I really liked your approach of paying a lot of your bills up front at the beginning of the year.

    The only issue with that for a newbie is that they most likely didn’t plan ahead and don’t have the money to implement that strategy. I use what I call saving for “Future Capital Expenses” to avoid this problem.

    This is where I break these bigger expenses down so that a prorated amount comes out of each paycheck and goes into a savings account. Voila! The money is there when the bill is due! Works like a charm for me.

    I wrote a post explaining how I do it and give a free worksheet for anyone who is interested in that method. See Reduce Financial Emergencies With One Simple Strategy over at EscapingDodge.com
    Ree Klein recently posted…References Available Upon Request…Really?My Profile

  3. Automating payments was one giant relief. We do pay auto insurance all at once, but I hadn’t thought about utilities. Hmmm….

    We have checks and cash coming in for lessons, and we make sure to have a little extra in the checking just in case.

    Once we simplified our spending (aka Stopped Spending Like Ninnies!), we are sleeping like babies. The key really was to pay down debt, and we are knocking off loans like Mike Tyson (sorry, I don’t watch sports and he’s the only one I could think of and I wasn’t sure how to spell the last name of the guy who pimps his grills).
    Tammy R recently posted…Walking Your Day AwayMy Profile

    • Nice, Tammy! Congrats on good sleep! I have separate savings accounts for all utilities and I am paying them a year in advance, for the most part. It works!

  4. Tony!!!!! I see the word automate in this post a lot!!! Or some form of it. 11 times so far, inclusind comments (control/F). And it makes me smile. It is so Ferriss-esque, so Sethi-ish. It works, and as musicians, what do we strive for? Consistency of tone, beauty. And how do we acquire this with any speed or agility at all? By making it automatic.

    Hope camp is still going swell and that everyone is enjoying the tech hiatus!!! Marvy post again, Big-T!!!!
    cj recently posted…Walking Your Day AwayMy Profile

  5. Good points to ponder. We really need to get organized in our finances. Monitor every penny that comes in and out. Just start budgeting and organizing. At first, we may be lazy in fixing our budget because we know that money will come tomorrow easily. However, we need to plan for our financial freedom in which money comes easily without working thru investments and businesses. It sounds impossible but it is possible and it can be done if we just take the necessary actions now.

  6. I have a similar approach. Make it all disappear and have fun with the rest. Barely thinking about your finances? that is a great problem to have!
    Pauline recently posted…Side hustle series: TutorMy Profile

  7. If you don’t mind me asking……I have most things automated. I have been reading around personal finance blogs over the last couple of days on how different ones view seasonal variances in certain bills – electricity in particular. We worked really hard to get our power bill down over summer but now that it is winter here, the dryer is being used and the heat pumps running and the power bills are back up. Our power company offers an option at the start of Summer to work out a monthly amount based on the last 12 months and that is the amount you pay (unless you really blow out the agreed amount of power). Usually by the start of Summer I am over paying Winter bills that I want to focus on reducing our useage and my husband isn’t a fan of paying in advance (although he is the one gasping at the $110 jump in monthly bill that we just received).

    How do other people accommodate seasonal highs and lows in budgets? I have also thought about setting up an expenses account where the average amount could go into it but I am aiming to keep our budget simple, and wanted to know how other people tackled this area?

    • It’s funny that we have the opposite problem in my part of the country. Our electricity rates literally double in the 4 summer months. Always be careful when paying in advance or doing any kind of averaging payment. 90% of the time you will be paying more than you need to. Utility companies are basically offering to manage your finances for you usually with a little cut off the top for them. They have absolutely no incentive, to give you electricity cheaper.

      • So far we are okay with it. I have figured out a payment in advance at a reduced rate, but if we come under the energy usage we get a credit. It works!

    • Hi Moni! You can either set up a savings account that you have money deducted automatically and call it “utilities” and pay it annually, OR you can work out an even monthly payment plan based on expected usage. If you are over in usage, you make up the difference at the end of the year; if you are under, you get a credit rolled over. It took me 2 years to get everything straight, but it was worth it!

  8. Automatic bill-paying has changed my life–whoever invented it, I love him/her!
    Joy @ Joyfully Green recently posted…Buddha and the Fine Art of Spider RescuesMy Profile

  9. Thank you for these enlightening tips in managing finances. Perhaps, we can also add that impulsive shopping should b avoided. This is one proven technique in getting out of debt.
    David @ PBC recently posted…Personal Bankruptcy Blog Carnival July 3, 2013My Profile

  10. Isn’t interesting that as the debt goes down the ease of everyday life goes up? I imagine that when I stop dealing with: two visas, Home Depot, Mastercard, Sallie Mae, and my mortgage my life will be so much more relaxed! Every single one of you that are further along on the debt repayment journey are my idols! I can’t wait to experience the sense of calm that you now are experiencing.

  11. I have a system like yours, where I barely have to think about anything. Everything is automated and it’s wonderful. The only reason I ever have to worry about money is if I spend too much!
    Daisy @ Prairie Eco Thrifter recently posted…How to Ask for Money Back When Somebody Owes YouMy Profile

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