Budget Once, Spend (or Save) Twice!

By Jill (Staff Writer), on July 27, 2010

Since passing my CFP^® exam, more and more of my friends are coming to me for financial advice. Sometimes they have a specific question, sometimes they want to create a plan to get out of debt, and sometimes they just want some advice on how to manage their finances going forward. No matter what they ask for, I always start with the same thing – do you have a budget? When they say no (which they almost always do), I set out to help them make one. And then, I give them my most valuable piece of financial advice. The one I’d write a book about if I ever got a book deal. My answer to David Bach’s “Latte Factor” and Dave Ramsey’s “Baby Steps:” whatever you spend (or save), do it twice — or as many times as you get paid each month.

Photo by Yutoobin via Flickr

How it works

When I started working, I would get paid on the 30^th and pay my rent on the 1^st. It would take about 70% of my take-home pay. I would worry for the next 15 days about every dollar I spent on food, clothes, and entertainment. And I did basically no saving. Then on the 15^th, I’d get paid and have exactly one obligation: my $100 student loan payment. I would pay that and then live high off the hog until the 30^th…and start the cycle again.

One day I woke up — what if I paid half my rent out of each paycheck? It’s not revolutionary, but it did wonders for my cash flow, my morale, and my savings account.

Now, I do everything twice — I use an Excel spreadsheet to help me track my income, spending, and savings. I created a budget that estimated my total monthly expenses and divided each number by 2. For things like food, I keep the money in my checking account and use it until the next paycheck. Fixed monthly expenses are treated a little differently: Half my rent is put into savings each paycheck. The total amount is then transferred over on the 30^th to make my rent payment on the 1st. Similarly, half of my student loan payment is put into savings each paycheck, then transferred back to checking on the 15^th to make the payment on the 16^th.

In addition to my monthly expenses, I add up annual expenses, divide the amount by 24 and save that amount each paycheck. I also add up planned out-of-the-ordinary expenses like travel and split them by the number of paychecks remaining before they occur, then save that amount each paycheck. More recently, I’ve been using SmartyPig to do the calculations for me.

Why it works

This system is great because it equalizes your spending and saving throughout the course of the month. No more feeling deprived for two weeks and then splurging on needless items for the other two weeks. Instead, you have a good idea of exactly how much money you have at any given time, and can rest easy knowing that your major expenses, such as rent, are taken care of.

Automating your savings will eliminate even more temptation. I use auto transfers to transfer the appropriate amounts for fixed expenses back and forth — putting them in savings the day I get paid and then pulling them back to checking the day I know the payments will hit my account. This way, money earmarked for certain things is out of my checking account, and impossible to spend accidentally.

How you can do it

If you want to join the “budget once, spend (or save) twice” movement, it’s easy. First, create a monthly budget that estimates your monthly spending on items such as housing, food, bills, transportation and entertainment. Divide each amount by 2 (4 if you are paid weekly), and start allocating your paycheck proportionally. Do the same for annual expenses such as car insurance, dividing by 24, and long-term savings goals such as upcoming travel or holiday gift giving, dividing by the appropriate number of paychecks. You may choose to use subaccounts at ING, an Excel spreadsheet, or simply a variety of checking and savings accounts to help keep your different pots of money straight.

This system takes at least a month to really get started. Starting in the middle of the month and putting aside half of the next month’s expenses is usually the best way to do it. Depending on how you do things, though, you may also be able to start at the beginning of the month. You might also choose to transfer over a few budget categories at a time over to this system, until you’ve given yourself enough breathing room to do it all at the same time.

Recommended articles:

• Dave Ramsey’s Financial Success Video
• How to Budget in Less than 20 Minutes a Week
• How To Budget And Track Spending For Your Vacation
• How To Stop Impulse Buying
• The Power of Small: Improve Your Finances One Step At A Time
• Personal Budget Software YNAB 3 Review
• What Is Cash Flow And How To Improve It

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Jill grew up in Texas, graduated from college in 2007 and is currently working in the DC metro area. Jill recently completed a 9-month certificate program in financial planning and will take the Certified Financial Planner (CFP) exam in November. After that she hopes to become a full-time financial planner. You can also find her as a staff writer at My Dollar Plan.

All posts by Jill (Staff Writer)

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