When you think about spending money, chances are you think in terms of mental “buckets.” There’s one bucket for household expenses, another for entertainment, another for groceries. When you use just one bank account for everything, it’s tough to know ahead of time if you’re overspending in one area at the expense of another.
For example, you went to that concert last week, a splurge you deserved. But now your car payment is due and your account balance is low. And payday isn’t until next week. You inadvertently borrowed from the car payment bucket to pay for concert tickets.
What if instead, you set up:
- A checking account for “must pay” expenses like rent, utilities, car, gas, insurance, groceries, cell phone. These are expenses you can’t skip, because they’re essential — and not paying them impacts your credit score.
- A savings account for building up an emergency fund.
- A second checking account for concert tickets, trivia night with friends, travel, eating out, etc.
Add up all your monthly “must pay” expenses. When your paycheck is direct-deposited, that’s how much needs to stay in the first checking account.
Then, decide how much to contribute to Emergency Savings every month. You’re working toward having three months of expenses set aside in this account. Can you contribute 10% of your takehome pay? 5%? Set up an auto-transfer from Checking 1 to Savings.
Whatever is left after MustPay and Savings transfers gets moved into Checking 2, your “Fun Money” account. You might choose to spend it, or let it grow so you can take a weekend trip next month.
Separating your money this way is a double-win: You feel confident because your essential costs are covered and you’re free to spend on fun things without feeling guilty. It’s also a simpler way to manage a budget, because it doesn’t involve tracking a bunch of individual expenses. There are only three buckets: Must Pay, Savings, and Fun Money.