My Current Budgeting Technique: The Hybrid Check-Point and Cash Plan
Yesterday I discussed a few different ideas for following-through on your beautiful budget spending plan . We have personally tried most of them (except for the all cash method) and have not been completely satisfied with anything yet. Not to be deterred, I’ve continued optimizing the plan. Today, I’m going to present our current technique.
The key for us is to automate as much as possible
I use billpay from my checking account to do as many bills as possible. I transfer money to my mother-in-law and even used billpay to send a check to my sister-in-law once. I have automated transfers from one account to another to take care of savings; money is deducted from our paychecks to fund our 401ks and employee stock purchase plan. I have learned that the more I automate, and the easier I make things, the more that gets done. So I do it as much as possible. That is all well and good but the budget is busted by the non-scheduled expenses, as I mentioned yesterday.
The basis of our current plan is the Check-Point technique
The latest approach we have been trying is the check-point technique. I pick a certain date and, on that date each month, I take a look at our checking account balance. I compare the current balance to the reference point to see how well we have done the previous month. If we are above the reference balance, that’s a good thing. If we are significantly below, that is not a good thing. Personally, I take the check-point as the day that our mortgage payment is deducted from our checking account each month.
We have moved the "non-essential" expenses to cash
Our latest variation, hence the "hybrid" moniker, is that we have started to use cash for some purchases. We continue to use our credit cards for normal expenses like groceries, gas, and other "necessary" things. We now use cash , however, for the "non-essentials" like dining out, buying toys, entertainment, etc. (you have to define your own categories)
To implement this, I withdraw some cash from our checking account at the beginning of each month. We do have a certain amount budgeted for non-essentials each month though I do not take all of it out at once. About half way through the month, I take out the rest of the allotted amount in cash. That way, if the essentials go over budget, we just take out less for non-essentials at our second withdrawal. In this manner, the technique is dynamic in that essentials take priority over non-essentials and we still buy groceries and such but maybe don’t each out as much, if necessary.
Don’t forget the "fun money!"
We also use cash for our "fun money" but this is a strictly separate category. My wife and I each get a certain amount of cash (it’s not much, but I haven’t spent it all in a month yet). There is no accountability with this money – we are free to do with it whatever we wish (that’s what I use for hosting this blog). I feel that the fun money is really important – especially for someone who feels overly restricted by the idea of sticking to a budget (especially when that magical trick of calling it a "spending plan" instead doesn’t work!) I would definitely recommend that you incorporate some "fun money" into your plan.
We are still in the process of checking this latest technique out
So far it has worked fairly well. The credit card bills were lower last month even with taking a vacation. And I love not having to write everything down. It is certainly not a strict plan that will force us to "give a name to every dollar" like Dave Ramsey would tell us to – but sometimes theory has to meet reality. As I mentioned yesterday, I’m still looking for the perfect plan. We’re ever-so-slowly inching towards a cash based method, but we haven’t taken the plunge yet. So, if you have any suggestions for modifications or other techniques entirely, I am all ears. (or eyes as it were, since I’ll be reading your comments on my computer monitor)
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automation is the key for us too. I think that the less time the money physically spends in your hand the more chance you have of reducing spending.
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