Keeping track of your expenditure can be a tedious job, especially if you have to take into account each and every tiny expense. Instead of tracking minute details, it helps to pay close attention to larger expenses, and ones that can actually cause you to overshoot your spending limit. Another thing that can help is setting up a second checking account.
You probably already have a savings account and a checking account. Now you need to set up a second checking account. Keep the first one for planned and necessary payments and the other for discretionary expenses. You should get your checking accounts linked to each other so that you can transfer money between them online.
Allocate funds to different accounts
The next thing to do is to talk to your company’s payroll department. Request for a portion of your paycheck to be directly deposited into your savings account. This can be used as savings or for long term purchases like a new home or a car.
Out of the remaining amount, the major portion needs to be deposited in the first checking account, which covers your regular living expenses. Make all your bill payments, grocery shopping, mortgage payments etc. from this account.
Deposit the remaining amount to your second checking account. This money can be used to cover variable or irregular expenses, especially those which could have been avoided. All your leisure expenses like eating out, traveling, and discretionary shopping should be paid from this account. This will make sure that you do not overspend, as you will be able to limit your discretionary purchases to the amount that you have allocated to the second checking account.
You also need to give yourself a little overdraft protection. Keep extra funds as minimum balance to ensure that your checking accounts don’t run out of money, as all the automatic deductions and payments could end up confusing you and you may not be able to keep track of account balances.
A second checking account can be very useful in curbing unnecessary expenditure. If you find it a hassle, then once you gain control over your spending, you can dispense with the second checking account and pay for all your expenses from the first one.
Of course, not everyone will find the second account useful. A lot of people like going through the details of their expenses and are quite disciplined in limiting them. This is just one of the many ways to make budgeting easier.