Each time you get a paycheck:
- 1. Put into a "bills" checking account however much you need to set aside for all the bills that you know will be coming up.
2. Put aside into savings however much you plan to save.
3. Whatever is left, transfer into a separate checking account. For couples who share money, each person needs their own checking account; divide the available money up between them according to the proportion of the expenses that each of them is usually responsible for.
I made some spreadsheets, as aids to this system, which should be available (free) here:
For Weekly Paychecks
For Every-other-week Paychecks
For Monthly Paychecks
They will calculate for you how much you should have set aside in your bills account and how much is left to transfer to personal account(s). They should work for one, two, or three people. I tried to make them as user-friendly as possible, although if you have tips for making them more so, let me know (especially for the weekly and monthly ones, since I've only used the biweekly spreadsheet myself). The spreadsheet needs to be updated each time we get a paycheck; this usually takes me maybe 5 minutes, more if I'm being indecisive about how much to set aside for things I want to save up for.
Here's some of what is so elegant about this system:
1. It minimizes tracking. You don't have to keep track of how much you have left to spend in multiple categories. You don't have to remember bills in your head to make sure there's enough in the account to cover them, because they all come out of the bills account. You don't have to know exactly what your spouse has already spent or is planning to spend on something, because that will come out of their account, not yours. If your bills are automatically withdrawn from your account, or automatically paid with Bill Pay (as we do), you don't even have to remember to pay them.
Instead, you just check your bank balance when you need to know how much you have left. All you have to remember is anything you yourself might have bought that hasn't posted to your account yet. Most purchases post within a business day or two, if not immediately, and most people are capable of remembering purchases that long.*
2. You can do everything digitally/online. This is a major advantage for those who dislike cash-in-hand budgets either because (a) those don't allow you to purchase things online; or (b) you don't want large amounts of cash either lying around or on your person.
(For those who do like cash-in-hand, you can still use the bills account and the spreadsheets, and simply withdraw the money in cash instead of depositing it into personal accounts.)
3. When you're out, you're out. Everything in the bills account is set aside for something, so what's in your personal account is all there is. It puts a natural limit on your spending; if you spend too much on something, there won't be enough left to cover something else. You'll have to go without, or at the very least take money out of a savings account to cover it, which has the psychological impact of forcing you to admit you failed.
* One exception to this that I've found is back-ordered amazon purchases, which don't bill until they ship, so that's something to keep an eye out for.
** In the interest of full disclosure, I first got the idea from the #6 "take" on this 7-Quick-Takes post, although the spreadsheets are entirely my own creation.