Banking from A to F

Richard Quinn

YOU MAY HAVE HEARD me say this before: I don’t think people need to budget if they have an effective spending and saving system. Recently, a reader of my blog challenged me on that point, arguing that you need a budget to ensure you’ll have enough to pay off your credit cards in full.

Au contraire, as we say here in New Jersey.

You may also have heard of the envelope method, where some people place money in envelopes for specific expenses. I follow that approach. But instead of envelopes, I use bank accounts—six of them to be exact, which I designate with letters A through F. I also embrace technology to help with saving and bill paying, and I leverage credit cards to garner rewards. You see, I’m not your stereotypical senior citizen.

Don’t worry: I don’t pay bank fees. The accounts are all linked and always hold sufficient combined balances to get free banking.

My income is from a pension and Social Security. My pension arrives on the first of the month, while our Social Security benefits get deposited on the second and fourth Wednesday. When that happens, this happens:

  • Checking account (A). Receives pension deposit.
  • Checking account (B). Receives a set amount from account A to cover all ongoing monthly bills.
  • Checking account (C). Receives a set amount from account A that my wife uses for her monthly expenses. Things like clothes, nails, haircare, gifts and donations.
  • Savings account (D). Receives the Social Security checks. These are segregated because we try to live on my pension alone.
  • Savings account (E). Receives a set amount each month from account A and is designated my wife’s savings.
  • Savings account (F). Receives a set amount from account A and is designated my savings.

Don’t get me wrong, none of this is really my money or her money. While these accounts have specific purposes, we aren’t so inflexible that we don’t move money from here to there if it’s necessary—but it’s also rare. I’ve been known to pay for my wife’s hair salon visits from account A. Similarly, account C has bailed me out on occasion.

As complex as this may appear, keep in mind it’s all done automatically. After the transfers occur at the beginning of the month, account A’s remaining balance tells me what we have left for discretionary spending.

Nearly all of our monthly bills are paid automatically, either withdrawn from account B by the vendor or charged to a credit card to accrue rewards. The funds to pay those credit cards are already in account B as of the first of each month.

Confused yet?

Savings account D, which holds our Social Security, is designated as travel money. If we don’t travel, which is likely for the next year or more, it becomes an extra emergency fund or, as happened recently, a help-replace-a-car fund. A car helps you travel, right?

Once a year, I review our fixed monthly costs and adjust the amount transferred each month from A to B. If that goes up, as it always does, then I automatically know I’ll have less discretionary spending money available in account A. Yes, inflation on a fixed income is real.

On the other hand, our current health crisis has clearly demonstrated that we can get by on less. No trips to the mall, haircuts, biweekly salon visits, travel or dining out does actually save money. I’ve even been denied my daily cup of (plain) Starbucks coffee.

I noted that my income is a pension and Social Security, but that’s not 100% true. I have dividends and tax-free interest to fall back on. For now, that money is reinvested, but it’s also there to cope with inflation. If I need to build up cash reserves, I can stop reinvesting for a while.

So, you see, you really don’t need a budget. You just need a good banking app and some obsessive behavior about money—plus a partner who’s likeminded (sort of).

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include It Took DecadesMaking Cents and Scared Debtless. Follow Dick on Twitter @QuinnsComments.

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