Budgeting instead of tracking expenses

Around six months ago I stopped writing down my expenses and started to use separate bank accounts for each expense category instead. My salary is automatically split into parts and each part goes to specific account. The whole idea is that instead of knowing “how much I did spent”, I know “how much I can spend”.

While writing this article I’ve found that (well, not surprisingly) almost the same technique is quite widely used in “You Need A Budget” methodology, however, mine is a slightly different. I don’t split costs so detailed and mine are automated as much as possible.

Separate bank accounts for every category

The whole idea of separating income into parts is that I can easily see how much I can spend in each category before the next salary comes.

That’s how it looks in real life

I use four general and a few more specific accounts:

1. Savings account. This is where my salary comes and from where money are being transferred to all the other accounts. I almost never pay directly from savings account but it gives me an overview whether my account is getting fatter or not.
2. Everyday expenses. This account is used for all everyday routine shopping such as getting groceries, lunches or just hanging out with friends. Usually, my card is connected to this account.
3. Subscriptions aka monthly payments. This account is used to pay for different but very predictable monthly bills like rent, electricity, insurance, Spotify, phone, credits etc.
4. Own insurance. It is mostly an “emergency” account. The idea is that when something unexpected happens, I spend these “designated” emergency funds instead of spending “whatever-I-save-up-for” money. It can be a doctor appointment, phone screen replacement, parking ticket or anything unexpected. And since I cannot spend these funds on anything but meds/repairs/fines, I find it much easier to convince myself to get a doctor’s appointment or to repair this goddamn screen. I transfer ~5% of my salary to this account and so far it was enough.
5. All the other accounts. All the other accounts can are designated to accomplish my aims. For example, accounts can be “Travelling”, “New TV”, “Car” and so on. I transfer some fixed part of my salary to these accounts and I always know how much more I can spend on my journeys or on my new TV this month.

Automation

All the stuff above only works well if the funds are divided automatically.

Also I’ve found out that it is much handier to transfer money on a weekly basis instead of a monthly. Simply because it is easier to track everyday expenses.

I’m using a simplest payment scheduling which most of the banks provide and I simply transfer XXX euros to my everyday account, YYY euros to “insurance” account, ZZZ euros to travelling and so on. So far it worked great as long as there is something on my “Saving” account :-)

Instead of summary

In general, I use the same principles as You Need A Budget uses:

1. Every Dollar Needs a Job. My funds are transferred and spent on different categories or saved for specific aims;
2. Save for a Rainy Day. “Own insurance” account is made exactly for such days. And there is always raining in my world;
3. Roll with the Punches. All my accounts and transfers can be very easily rearranged inside same bank. It is not fixed. If I see that I need more money for one of the accounts, I simply adjust my transfer settings;
4. Live on Last Month’s Income. So you should always have at least your monthly salary on your saving’s account. In this case all the auto payments will work even if your salary is delayed or something unexpected happens

Well, does this setup sound simple and effective for you?