Split Budget Method: A Simple Way to Manage Your Finances

Have you ever had that moment when you realized that the rent is due on the 1^st but your paycheck won’t hit your account until the 2^nd? 

Or that you just got paid but now a large car payment is due so that doesn’t leave much left to carry you until the next paycheck.  If you said “yes”, then you’re not alone.

Many people struggle with their monthly bills just simply because of the timing of when the bills are due.  Having to pay several bills all at once can really zap your paycheck and leave you with nothing left to handle unexpected expenses.

Well, today I want to talk with you about a type of Split-Budget Method that might help you out.

 

What is the Split-Budget Method?

Simply put, it is splitting your expenses evenly between your paychecks so that the full cost of an expense doesn’t all come from one paycheck.  This method can be great for helping you set up a monthly budget as well.  Let’s look at an example:

In this scenario, we have the following:

Income:  $1,200 per paycheck (after tax)                Expenses:  $800 mortgage payment

                                                                                                     $300 car payment

If both of these are due the same week that you get paid you can see how that would take a significant chunk of your paycheck and not leave much left for you to live on until your next payday.  What we are going to do instead is split these expenses into two “bills”. 

Let’s assume that the paycheck above is paid on a biweekly basis.  We would simply allocate $400 per paycheck for the mortgage and $150 per paycheck for the car loan each month.  This will lighten the burden of one paycheck needing to cover both of these bills at the same time and still leave money left over for you to use in between paydays.

This can also help with taking the stress out of the timing of payments.  By allocating (setting aside) money from each paycheck to cover future monthly bills you won’t have to worry about when a bill is due and when you are getting paid next.  You’ll already have the money for that bill sitting somewhere, ready to pay.

So where do you “set aside” this money?

There are some options on how you can do this.  One option is to take the cash out of your bank and literally set it somewhere, in a jar, in a lockbox, wherever you want, just make sure it’s a safe place.  Now I would not personally recommend this option mainly because the cash could get lost or stolen.  Plus it would be too easily accessible for you (or someone else) to grab some cash out of the jar to pick up dinner on the way home from work, or something like that.

Another option would be to set up a new checking account with your bank, yes you can have more than one checking account.  This new checking account, which we’ll call the “Bill Pay” checking account, would be used solely for paying your bills…thus the crafty name.  When you set up this account, do not get a debit card for the account, that would again make it too easily accessible for you to spend on miscellaneous items. 

The idea here is to have the money available for paying bills but not so easily accessible that you could “accidentally” use the money for random things.  Most companies now have the option to set up payment processing through their own website by using a checking account. This is where you will use your Bill Pay account instead of your main account where your paychecks are deposited. 

Now here’s the hard part, YOU need to be responsible enough to remember to transfer money from your regular checking account to your Bill Pay account each time you get paid.  If possible, try setting up an automatic recurring transfer through your online banking website.  This can take some of that burden off you, so you don’t have to always make the transfers.

When done right, this Split-Budget Method can ensure that your most important bills not only get paid on time but that they don’t eat up a huge chunk of your paychecks each time they are paid. It does take some discipline on your part to stick with the plan and not be tempted to “borrow” some money from the Bill Pay account to buy that new pair of shoes or whatever you’re into.  Sticking with this plan can help reduce some of the stress of “how are we going to pay the …” and can be used to help you set up a personal budget plan as well.