Spending to zero

[retinadoc]

Just wanted to put this out there for the younger guys on the forum who are learning money management. This has worked very well for me and may help you. (Numbers below are for a hypothetical $6000/mo spending budget.)

Core issues: 1. It's cumbersome for us to make and follow a budget, 2. Paying yourself first is key, 3. Best mix of accountability and convenience: Debit cards > Cash > Credit cards.

Me and my wife have 2 bank accounts: 1 SAVE account and 1 SPEND account. Paychecks all go into the SAVE account. On the first day of each month, we automatically transfer the entire monthly budget of $6,000 from the SAVE account to the SPEND account. We use the SAVE account as our emergency fund, so all money in excess of $30,000 gets transferred to savings/brokerage accounts. Then, it's as simple as spending using our bank debit cards (linked to the SPEND account) as needed for the month. At any time, we can check the bank app to see how much spending power we have. We spend to zero guilt-free because we know that our savings goals are already accounted for before the money hits our SPEND account. If we are running low, then we know to slow down. If there is any extra money left over in the SPEND account, we either split the money and transfer it to our personal bank accounts as "fun money" or transfer to our vacation fund at Ally.

I realize this is just a behavioral thing, but it works for us! There are some downsides, namely no credit card rewards and less purchase protection; but, I am convinced I was actually spending >2% more than I would have if I had used debit cards or cash. The dissociation between my credit card spending and the money that was actually in the bank made it too easy to overspend, even though I did pay my bill in full every month.

Anyone else have any behavioral tricks that help control spending/budgeting?

 

[jfoxcpacfp]

I like that.

[Zaphod]

Debit cards are also very unsecure and prone to hacking, and your recourse with that issue is not good and the time to fix can be extended. No issues like that with a CC. Why cant you just follow your spending with a cc, you can use mint/pc just like you would the debit to keep track of spending? Then auto transfer the money to the cc on due date pay in full each time.

[StuRedman]

My family uses YNAB.  We put every dollar to work, in different budget categories as we get paid.  We really like it, it is the only budget that has worked for us.  It is more forward thinking than something like Mint that is looking back.

We give every dollar a job and spend to 0.  It is also nice because ynab wants you to make a buffer fund that pays this months bills from last months pay.

We put everything CC for protection and rewards.  No more debt since ours was compromised a couple years ago.

[retinadoc]

Zaphod wrote:

Debit cards are also very unsecure and prone to hacking, and your recourse with that issue is not good and the time to fix can be extended. No issues like that with a CC. Why cant you just follow your spending with a cc, you can use mint/pc just like you would the debit to keep track of spending? Then auto transfer the money to the cc on due date pay in full each time.

Click to expand...

I could track spending like you describe, that's what I have done in the past; but for me it's a less straightforward way to "spend to zero". In order to do that on Mint (from what I remember), you'd have to create a monthly budget.

Protection for debit cards is actually pretty good, max liability is $50 if you report card as lost/stolen within 2 days. If someone hacks your account (you still have your card), you're not liable for anything as long as you report the unauthorized transactions within 60 days. --https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-credit-atm-and-debit-cards

 

StuRedman wrote:

My family uses YNAB.  We put every dollar to work, in different budget categories as we get paid.  We really like it, it is the only budget that has worked for us.  It is more forward thinking than something like Mint that is looking back.

We give every dollar a job and spend to 0.  It is also nice because ynab wants you to make a buffer fund that pays this months bills from last months pay.

We put everything CC for protection and rewards.  No more debt since ours was compromised a couple years ago.

Click to expand...

I tried YNAB before, but had trouble understanding it. I'll need to try it again, so many people love it.

[StuRedman]

It took a couple months to get the hang of it, and a couple resets.  Now we are on auto pilot.  I credit it and this site to saving my bacon.

[artemis]

Zaphod wrote:

Debit cards are also very unsecure and prone to hacking, and your recourse with that issue is not good and the time to fix can be extended. No issues like that with a CC. Why cant you just follow your spending with a cc, you can use mint/pc just like you would the debit to keep track of spending? Then auto transfer the money to the cc on due date pay in full each time.

Click to expand...

Or skip Mint/PC and just get a credit card with the same bank the SPEND account is at; that way, when you log into the bank account, you can check the SPEND account balance and the credit card balance at the same time.  And you can pay the card weekly, so the card balance never gets out of hand.

I like the overall approach the OP suggests, though, very much!  (I just wouldn't use a debit card.)  Save first, and spending is less likely to get out of control.

[Zaphod]

Agree, I like the plan, just dont like debit cards, they are very unsecure and a liability.

[jhwkr542]

This seems like too much penny pinching for my taste.  Looking at our budget of $8k per month, discretionary spending is probably only $1k.  The vast majority goes towards student loans, PITI, bills/utilities, food, gas, and school/babysitter.  Those alone are budgeted for around $6500.

[Zaphod]

retinadoc wrote

I could track spending like you describe, that’s what I have done in the past; but for me it’s a less straightforward way to “spend to zero”. In order to do that on Mint (from what I remember), you’d have to create a monthly budget.

Protection for debit cards is actually pretty good, max liability is $50 if you report card as lost/stolen within 2 days. If someone hacks your account (you still have your card), you’re not liable for anything as long as you report the unauthorized transactions within 60 days. –https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-credit-atm-and-debit-cards

 

Click to expand...

I dont find it hard to spend to zero as you call it without a firm budget. I generally know the bills/expenses that month and then I give myself a little cushion ICE, and the rest is transferred to the brokerage account.

Not saying the debit card wont protect you just fine, its just a much easier way to get scammed than a credit card, and it can take a long time (2 weeks) for those things to be rectified. CC are far more secure (but nothing is totally so obviously) and they are much more vigilant about fraud protection. Maybe debit cards became better in the last few years as I havent used one forever, but until theyre better, I wouldnt touch them even though I agree that they are better for this purpose.

[tex]

All of our bills are on auto-pay, and retirement savings comes out before we ever see the paycheck or soon after. All money from extra shifts goes to debt. All purchases on credit cards, all paid off every Friday. End of every pay period we decide together where the leftover goes (usually to fun stuff). Gives us something to talk about twice a month to keep us mindful of our longterm goals. Moving our EF to an online bank that takes a few days to transfer out of also helped my DW separate it psychologically I think.

Basically the same setup as you, but I do think you're missing out on some purchase protection and cc rewards. Paying off cc as you go also allows you a 30+ day interest-free loan in a major emergency.

[retinadoc]

jhwkr542 wrote:

This seems like too much penny pinching for my taste.  Looking at our budget of $8k per month, discretionary spending is probably only $1k.  The vast majority goes towards student loans, PITI, bills/utilities, food, gas, and school/babysitter.  Those alone are budgeted for around $6500.

Click to expand...

No kiddos, no loans, renting. For now. The expenses are only going to go up!  

[nachos31]

And I thought I was going to be regaled with a tale of spending down retirement funds all the way to zero.

[Craigy]

I will second Zaphod and say that I prefer credit cards for the protection, and the rewards are a nice bonus.

I see no reason to ever use a debit card unless I need to pull cash out of an ATM or buy a money order at the post office or something strange like that.

When your credit card gets stolen, you call and dispute the charge.  No sweat off your back, you never lost anything.  When your debit card gets stolen, your money is gone until the bank processes everything and decides to give you some of your money back.  I've seen this happen to friends, family where they were up a creek paying bills and whatnot, completely stressed out for days and weeks until they got their money put back in their account.  No thanks.

 

[Craigy]

Really, I would rather carry and use cash exclusively than use a debit card.