If monthly budgeting makes you feel like you’re starring in a high wire juggling act, then maybe it’s time to start working with a safety net and bring some order to the chaos. You can do that with one simple trick: Divide and conquer
Stacy Yanchuk Oleksy, Director of Education at the Credit Counselling Society, says the most efficient way to organize monthly bills is to divide your expenses into three groups, then go to the bank and open an account for each. That makes budgeting and paying debts and expenses much easier. The three types of expenses are fixed expenses, variable expenses and irregular expenses (plus savings).
Account #1: Fixed expenses
This is where you keep money that will cover expenses and debt payments that stay the same every month, such as: car payments, rent/mortgage payments, loan payments and insurance.
“You know exactly what is coming out of that account and when,” says Ms. Yanchuk Oleksy. “The timing is predictable — so is the amount.” By moving money from every paycheque to cover this set amount, you’re taking any guesswork out of the equation. You set it and forget it.
However, for this to work you need to have one strict rule for yourself and anyone else who has access to the account: No personal withdrawals ever. Every cent should be going to fixed expenses.
Account #2: Cash and variable expenses
Variables are expenses that come up every month, but not at the same time or for the same amounts, such as some utilities, gas, groceries and entertainment; use this account for cash payments and purchases.
The one basic rule for this account is once the set amount in the account has been spent during the month, you cannot access it again until the next paycheque comes in.
Account #3: Savings and irregular expenses
The purpose of this account is to save money for seasonal expenses (like back-to-school supplies), unexpected home repairs, dental emergencies, vet expenses, and the like.
This account might take a while to build up and can get cleaned out quickly with one unexpected expense like a car repair bill. One tip is to use any extra income, such as a work bonus or tax refund, and deposit it directly into this third account.
The important thing to remember is your fixed expenses are the ones that you must pay without fail. Missing a car or loan payment will damage your credit score. Variable expenses are easy to overspend on, so make sure you have a monthly budget (use this handy budget calculator to get you started). Your third account, for savings and emergencies helps keep you on track for life’s unexpected expenses.