How to better manage your day-to-day money (without budgeting)?

When I started making money, I had no system in place to manage it. Since I was fortunate enough to make more than I was spending, I didn’t really think that there was an issue. Soon, I realized that this could result in lifestyle creep and if I don’t manage my money better, I had no control over how much I was spending vs. saving. However, I did not want to budget where I was spending my money. I wanted a system that made sure my total spending remained in check regardless of where I spent it.

I came up with a system and it has worked really well for me. Over the years, as my take-home pay increased, this system made sure my expenses didn’t go up along with it. It also gives me a very easy way to know how much I have left to spend.

Here’s how it works:

Step 1 — Set up your bank accounts

In most cases, you don’t need more than two bank accounts — 1 checking and 1 savings account. Ideally, your checking account should have no fees and a low (or better 0) minimum balance requirements. Your savings account should be a high yield savings account. Don’t get a savings account that gives you 0.01% interest. Depending on the current Fed Rates, you can get a savings account with at least a 1.5% interest rate.

Step 2 — Calculate your monthly expenses

Now that you have your banks set up, the goal is to make sure that you keep the bare minimum in your checking account. Everything else goes into savings. So, start by calculating how much you spend every month. Include recurring expenses like bills and your discretionary expenditure but don’t include big one-time expenses.

Step 3 — Set up your direct deposits

Most likely, your employer allows you to set up multiple direct deposits. The goal is to deposit only what you need in your checking account and everything else in your savings. If you get paid twice a month and your monthly expenses are $1,000, set up your direct deposit to deposit $500 in your checking account and the remainder in your savings. If your employer does not allow this, you should default to depositing in your savings account and set up a repeating transfer to your checking account.

That’s it! With this simple setup, you can automatically avoid many common financial mistakes including lifestyle creep and overspending. When your paycheck increases or you get a bonus, everything goes into savings. Of course, when you want to take a vacation or buy something expensive, you can be more deliberate and transfer that amount from your savings to your checking account. And anything that’s in your checking account, spend it guilt-free!

Pro-Tip

Live on your current paycheck, not your next one.

I have seen many people make this mistake where they live on your next paycheck. Don’t do it! If you have $1,000 in your checking account, that’s all you have to spend. This includes your credit card bills. If you have a current balance of $200 on your credit card bill, you only have $800 left to spend. If you run out of money, consider transferring from your savings or adjusting how much you spend every month.

If you liked the way I manage my money, download Funded (available on iOS in US/Canada). It works even better when you follow these tips!