I really appreciate the comments on my last post. They were all thought provoking and fun to read. I’m looking forward to responding to them, but in the mean time this post is in a completely different vein.

I really thought that I had my finances in order. Beth and I have a cushy savings account that could cover about four months worth of expenses; we have no credit card debt and only $20,000 in student loans all of which is mostly at 3% or some other ridiculously low rate. Even still, I found myself worrying about our money, I felt like I didn’t have any control over where money was going and that the only reason we were doing well at all was because when we transitioned from college life to the working world our income more than doubled – once we adjusted to this, it seemed to me as if we would be in trouble.

I am a very organized person. This is not a natural ability of mine. In my teenage years I recognized that I needed some way to keep track of my outstanding to-dos, but about the closest I ever came to a ‘system’ was a pile of papers very neatly crammed in my backpack. I knew that the most recent stuff was at the top and so I mainly dealt with that layer. At the end of each semester I went through the pile and put anything I thought I might like to keep in my filing cabinet. Needless to say, this wasn’t the greatest system and as a result I was never very reliable.

In college I lived in a 10×10 foot room with a roommate for 2 years. That room got messy fast. I quickly learned that the only way to keep things under control was to make sure that everything had a place. It wasn’t so important to me that everything was always in its place, (remember I’m not a naturally organized person), but as long as I knew where everything should go then it never took more than 30 minutes to clean up even the worst messes. This gave me great peace of mind. When I looked at the room, Instead of thinking, “I really should clean that mess up, but it’s so much work it will have to wait”, I always knew how much work it would take to clean up, so I could decide whether I wanted to do it at that moment or later.

As it turns out, making sure that everything has a place is the key to any organizational system. When you’re organizing what’s in your head, the key is to take everything out and put it somewhere where you know you will find it at the appropriate time. If you know that everything is in your system and everything will present itself at the appropriate time so that you won’t forget – anxiety almost completely disappears. I use the GTD system created by David Allen, and I highly recommend this system to anyone.

When looking at my money situation I realized that the reason I had anxiety was because I didn’t have a place for everything – my system sucked. I decided to sit down one day and bang out something useful, and I thought I would share what I created with everyone since I think it’s incredibly useful. (Would I come up with anything that isn’t incredible? No).

The System

You will need a notepad and a copy of all your bills. The bills don’t have to be the most recent as long as it includes the date it is due and the amount. Go through each of the bills and write the due date and the amount down, also write down your paycheck amount and the corresponding dates, then order this list by date.

Now you need to decide on a fiscal period. This is fairly arbitrary, so do what makes the most sense to you but don’t think about it for too long. I picked the billing cycle of my American Express card from the 22nd to the 22nd of each month.
Now we lump our expenses into three categories:

• Automatic withdrawals, (savings, retirement, etc.)
• Fixed, recurring expenses
• Everything else

Automatic withdrawals:

I have 15% of my paycheck dumped into a savings account. Beth and I are saving for a down payment on a house, so nothing is going towards retirement at the moment. Once we’re done with the house, this will change. It’s up to you how much you save here. Here is the order that I would go in: 3-6 month emergency fund, retirement accounts, other investments. If your company offers matching on their 401k, always make that top priority.

Open up an account with Emigrant direct and set up direct deposit through your payroll department. I have two direct deposits with 85% going into my checking account and 15% going into savings.
Fixed, recurring expenses:

This is where that list of bills comes in. These bills come up every month, and they are almost always the same amount, (for utilities I just picked a number that seemed like it would almost always be more than the bill).

The goal with the list of these bills and creating a fiscal period is to make it possible to come up with one or two days that you can put on your calendar when you will pay all the bills and make sure everything is headed in the right direction. I looked at mine and it wasn’t immediately evident to me how I would accomplish this. Then I realized that I could set up automatic billing for almost all of my fixed expenses which meant that I only needed to worry about paying off my MasterCard bill on time.

Now the days I think about money are on my calendar, (remember my billing cycle is 22nd to 22nd, so these dates appear to go backwards):

The 24th, close fiscal month, (this is my process, yours may be slightly different)

• Pay American express balances
• Review assumptions in financial plan, (paychecks, monthly recurring bills, etc.), make any necessary adjustments
• Transfer money to or from to make checking account balance equal $2300. This is enough to cover recurring fixed expenses: MasterCard bill (this are all my automatic bills, we don’t carry a balance), student loans, electric bill, rent + $300 pad. I will need to pay much of this before the first paycheck of my billing cycle. This may require some adjusting up front to get to this initial balance, but after one month there should not be too much adjusting.
• Set up any automatic transfers to occur for planned future expenses. For example, you want to buy a $200 bookshelf in two months, you set up an automatic transfer to secondary savings account for $100 to occur twice. Adjust your available spending cash for the month. You are treating saving like a bill that must be paid. (More on this later).

The 13th

• Pay MasterCard balance

Everything Else

Add up your recurring fixed expenses and subtract that from your monthly income, (You’re income is your original paycheck minus all of the behind the scenes automatic withdrawals). Don’t spend more than that amount. That’s it. What, no budget? I don’t think people really need a budget. I think the only useful thing a budget does is force you to allocate all of your money – this way you know how much you can spend. This of course naturally reduces anxiety but it is a huge amount of overhead. Why do I need to know how much money I can spend on books? I only allocated $15 per month but I really want to buy that $22 dollar book but it will put me over budget! Screw that. I can spend $1200 a month. I know between gas and food, I typically have about $500 left. I have a pretty good feel for how much I have to spend, I can also check my American express balance and see if I’m headed up too quickly – if that’s the case then I just slow down my spending. Easy.

If you want to purchase a relatively big ticket item, (I would say over $100 falls into this category), treat it like a fixed, recurring expense. That’s what the fourth bullet above is describing. Pay $50/month into your savings account for two months, then you can buy your $100 thing. “But I really want that $300 oak vanity now!” or “But I owe $900 for car insurance next week because I forgot to plan for it!” Okay, give yourself a loan. I’m assuming you have 3-6 months of savings, pull it from there, charge yourself 5%, and create a loan payment in the fixed, recurring bills category. Keep in mind that with any of this, it is subtracted from what you can spend each month, so you will have to spend less money to by that vanity.

What have I left out?

Let me know! It seems to me as if this covers everything. I don’t really need to think about my money except once a month I do a high level check and every couple of days or so I check my American Express balance to monitor my day-to-day spending. My anxiety levels around money have disappeared.