Using multiple bank accounts
Another way to budget your money in order to work hard
at becoming debt free and or staying debt free ids to
utilize more than one bank account. You simply use
different accounts for different purposes. This type of
budgeting system is like the envelope system except
there are not so many and you use bank accounts instead
of keeping the cash at home. Once you have set up the
accounts, you use one for paying certain bills that
occur monthly and deposit enough money into that account
and have your creditors and or lenders take the money
out automatically each month right from that account.
Many banks provide customers with free online bill pay
or free bill pay access. The first account should be for
fixed amount bills such as your mortgage, car loan and
any other stable priced bill. – even your car insurance
is almost identical from month to month or quarterly –
however you pay it. Use this account for these types of
bills and insure you deposit the same amount of money
(enough money) into that account each month or pay
period.
Another account can be for revolving accounts. If you
are serious about getting debt free, you will be putting
enough money in this account each month to pay over the
minimum payment for each and every credit card. Or be
certain that at least the one with the highest interest
rate gets this treatment). Never add more purchases on
your credit cards and keep putting the same amount of
money in this account each month – even after the cards
are getting paid down (the high rated ones first of
course) so you will see them paid off faster than you
know. Another account should be your account from which
you buy groceries, gas, entertainment and all other
discretionary purchases from.
While this system takes a bit of management, it is a
good idea for those of you banking with a bank that
provides free unlimited checking and automatic bill pay
and such.
Automatic withdrawal and payments
This
is the easiest way to eliminate extra management and
work on your part. It requires you to have a steady
income and deposit so there is always the needed money
in each account when it is automatically withdrawn. You
simply set up this monthly bill payment with your
lenders – most do not charge for this. Your bank will
not either as long as you have a free bill pay account.
All creditors and utility companies have this form of
payment program that they provide to customers. Once it
is set up, you only have to make sure money is in the
account. Bills will automatically be paid on time each
month – no late fees and you stay on track. You save
postage. If you do not set up auto payments, you can
also pay by phone using your check card or checking
account info when you need to. Just be sure to pay on
time as you are in control of when this happens. Also,
check to see if there are any fees when you do this. If
so, it usually comes from the lender not the bank. Rare
cases when you use your check card to pay bills when
calling your credit company may result in out of network
ATM fees from your bank. This is rare and the fee is
minimal. So, be certain of your banks requirements and
the requirements of all your debtors before you look
away – especially if you put just enough money in the
account to only cover the bill itself. But, once you
have these bills set up and in place, you will have so
much more free time where you are not running around
trying to pay bills. You will save gas and postage too.
Even though you have auto payment set in place – you
still want to pay attention to each and every bill that
comes through in the mail. Look at the bills for annual
fees and other hidden or incorrect movement. If you have
a computer, this will be even more convenient for a
budgeting system for you as you will most likely be able
to track and view your checking accounts online for
free.
Using multiple banks
Just
as having cash in many envelopes leads to temptation,
having cash in various accounts at the same institution
may have temptation. If all your accounts are at the
same bank, you will me more likely to start moving money
around if you over spend in one account such as your
discretionary account. If you spend too much from it on
dinner or something equally as foolish, you may be
tempted to take money from your revolving debt card
account and make a lower payment to make up for it and
put that money into your discretionary account as so on.
This could become a viscous circle. Not all banks allow
you to move money from account to account fro free – but
most do. If your money is in different banks – you will
not be tempted to move it from account to account.
Again, like any system that is designed to get you out
of debt, this one takes discipline and attention to
detail.
One
important thing that needs to be stressed is that you
should only get an ATM or check card on you your
discretionary account. Do not add to temptation by
getting check cards and or ATM cards on any of you
rather accounts – what do you need them for other than
to get into trouble.
Of
course your money is yours to spend however you want,
but if you are reading this website at all, you are at
least researching ways to become debt free and to
achieve that goal you have to understand what it means
to be diligent and disciplined when budgeting to reduce
your debt.
Part 5…
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