A FEW THINGS YOU SHOULD NOTE:
- This is a kind of spin-off step 3 post from my Create a Budget series Step 1 and Step 2; you should read those first.
- One thing you should know first is that I saved enough for one month’s expenses in order to be a month ahead of my bills. What this means is that, in a given month, I’m living off of money that I earned the month before, NOT on money I’m earning now. I’m living on a month that’s already been fully paid for.
- If you’re living paycheck to paycheck, you already know that that’s a really stressful, shaky position to be in, and I encourage all of you who are paid sporadically (as so many self-employed people are) to get a month ahead of your bills. Make this your first financial goal. If you spend $3,000 a month, save $3,000 as fast and aggressively as possible.
- This guide operates under the presupposition that you know how to use the systems mentioned. It’s meant to be a brief, step-by-step guide, not an instructional manual-type post.
- If you don’t know how to use the systems and software mentioned below, throughout the guide I’ve provided links to detailed explanations. You can access those and then come back to this post.
- At the bottom of the post will be an even more concise summary of the following.
Without further ado, here is my money-management system:
- We’re going to pretend it’s August 16th: When checks come in, I deposit them into my Citibank account via their smartphone app. I have my PayPal linked to this account as well for the clients who pay me through that. The moment I get paid, I transfer the money, via the PayPal app, immediately into Citibank and leave it there.
- On the 15th of the month (now September 15th in our imaginations), I transfer everything I’ve deposited from the last month into my Simple Bank account using the Simple smartphone app. You can read my full review of Simple and how fantastic it is for organizing and managing your money.
- From the moment you’ve initiated the bank transfer from Citi to Simple, begin step 1 again; in other words, from the 16th on, any money that comes in goes into Citibank and will sit there until the 15th rolls around again.
- It’ll take a few days for the transfer to complete and show up in your Simple account. So sit tight for a few days. Remember: any money that is coming in now from clients is going to Citibank. It NEVER goes directly from client to Simple. It always goes into Citi first.
- We’ll pretend it’s September 20th and your transfer from Citi to Simple is complete. Using the Simple smartphone app, I then move all of the money into a Simple envelope (or “Goal” as they call it), labeled with the name of the upcoming month: October.
- Yes, being a month ahead of your bills means that from August 16th-September 15th, the money that comes in is to pay for October. It’s a great feeling.
- Two days before October (September 29th), I log into EveryDollar on my laptop. EveryDollar is Dave Ramsey’s free money-management app that works off of the zero-sum budgeting system (which you can read more about in Step 2 of my Create a Budget series.)
- Once logged in, I create my budget for October: I input the amount I have for the month (the amount I added into my Simple envelope in step 3), and edit my expense categories until I hit zero.
- Once that’s done, I go through my categories and add up all of the ones I can pay for in cash; for example, restaurants and groceries. I write the total number down on a piece of paper.
- I open up the Simple smartphone app, and create an envelope called “Cash.” I then create my envelopes to reflect the rest of my categories in EveryDollar.
- Now comes distribution. Move the money from the October envelope into all of the other envelopes.
- When you’re done, all of your envelopes should have the money you’ve budgeted and allotted for them, your cash envelope should have the sum total you’re going to spend in cash, and your October envelope should be empty. You can delete it or label it November, if you want.
- Today or tomorrow (September 29th or September 30th), you’re going to head to a Simple-approved ATM (which you can find a list of on their site based off your ZIP Code). Before you get in your car to go, open up the Simple app on your phone again and move all of the money that’s in your “Cash” envelope to your Simple Safe-to-Spend.
- At the ATM, withdraw the money from cash. You should still have that piece of paper with the number on it.
- Go back home and put the cash into your physical cash envelopes.
- I wrote an in-depth post on using the envelope system, if you don’t know what it is or haven’t used it before.
That’s it! You’re ready for October! Your cash envelopes have been set up; your Simple envelopes have been labeled and filled.
When an online expense has to be made with your debit card, you can easily and instantly move the money from the Simple envelope into your Safe-to-Spend.
Remember to track all of your expenses in EveryDollar! The paid app does it for you, but I recommend using the free because then you do it by hand and you’re more mindful of your budget.
Here are all 11 steps in a brief, summarized, and actionable format:
- Clients pay via check and/or PayPal; you instantly deposit and/or transfer to Citibank (or whatever bank you have.)
- On the 15th, use Simple’s app to create a transfer of all that money from Citi to Simple.
- Wait for the transfer to clear and the money to be in Simple.
- It’s in. Make a Simple envelope with the name of the month this money is for (the impending month.) Move the money into that envelope.
- Two days before the impending month, go online to EveryDollar and create a budget for that impending month.
- Identify and add up all of the categories that can and will be paid in cash. Write that number down.
- Create a Cash envelope in Simple and create envelopes for all other EveryDollar categories that are not being paid with cash.
- Distribute the money from the Simple impending month’s envelope into all envelopes made in Step 7.
- Move the money that’s in the Simple cash envelope to your Simple Safe-to-Spend right before going to the ATM.
- Go to the ATM and withdraw that amount.
- Go home and distribute the cash into your physical envelopes.
How did the system work for you? Let me know in the comments and if you have any questions!