How We Budget Our Paychecks

Original Post February, 2009:

I was talking to my sister today about how I budget and pay bills and find money to send towards our home equity loan.

We get two paychecks a month on the 1st and the 15th. They are virtually equal.

I first pay all bills and investments that are due during that time frame. Many of these are automatic, but I record them all in the checkbook.

Second, I mentally pull $700 from the remaining checkbook balance. This $700 is for auto fuel and groceries. We use it to pay clothing, kids lunches...whatever comes up during that pay period. Sometimes this isn't enough. I'll explain that later.

Finally, the remaining amount after bills, investments and our $700 is the amount I should have available to send in to our home equity loan. Or any other debt or goal I might be focusing on at the time.

This is the basic plan each pay period. We have a second checking account that holds our escrow funds (see my page on the right about that) and a small cushion of cash. This small cushion is not more than $500. Right now it is actually $250!

So, if the $700 runs out we attempt to curb spending or dip into the cushion in our 2nd checking account. We also can dip further into our emergency fund for large car repairs, ect. If we do borrow from the EF it gets paid back with the extra funds we get the following pay period, or as many pay periods as it takes.

If we know of expenses in the future, we simply put the cash aside ahead of time. For example, I expect to purchase a new sink for our kitchen at some point. When the time comes I will reduce the extra principal payment to the home equity loan by the amount I need for the sink.

So, clear as mud? Does that make sense? I hope it helps someone out there. It works for us. I already have a handle on most of our spending so that helps keeps things working smoothly.