In part two of our video series on how to manage your money without a budget, Doug Hoyes explains how to set up a simple system, known as your PLAN Account, to manage your bills and make sure everything is paid on time, without running out of money.
Managing Payments with your PLAN Account
In my first video on budgeting I told you that the secret to budgeting is don’t do it. Budgeting is complicated so unless you’re an accountant or really like working a spreadsheet, chances are after a week or a month you’ll give up. Instead of budgeting, my solution is to pay your bills as often as you get paid. So if you get a paycheck every week, pay your bills every week. If your phone bill is $100 per month, instead of paying $100 per month, pay $25 per week. It’s easy because most of your monthly bills like hydro and cable and phone accept internet payments so go online and pre-program in all of your payments on payday for the next six months. Done.
Paying every week or every two weeks or however often you get paid is easy if you can pay your bills on line, but what about bills you can’t pay online? You probably pay your rent by giving your landlord post-dated checks each month or maybe you may cash for your rent each month. Your landlord probably doesn’t want a check every week because it’s a lot of work for them to deposit a check each week. So what do you do? Simple, you open a second bank account for your planned payments. These are payments you plan for, but don’t pay every paycheck. So what goes into this PLAN account?
First, your projected payments for the next month – things like your rent, car insurance, or anything else that’s coming up in the next month. Then you’ve got your layaway money. This is money you’re laying away for purchases over the next few months like car repairs or clothes for the kids or maybe even a gift for a wedding you’re going to in the next few months. Next are your annual payments like Christmas, birthdays, your car license renewal or anything else that only happens once a year. Finally, you put in your need payments for necessities that you need to save for. This could be anything from saving for car repairs or a replacement car or even for your kid’s education fund. That’s four categories. Projected payments like rent and car insurance for the month, layaway payments for expenses over the next few months like car repairs or clothes for the kids, annual payments like Christmas presents, vacations, and birthdays, and needs, like car repairs and savings.
Once it’s set up, it’s simple. Your paycheck goes into your main checking account on payday and you pay whatever bills you can pay every payday. Every payday you have your bank automatically transfer money to your plan account to pay everything that you can’t pay every payday. So let’s say my rent is $1,000 per month. I get paid every week so every week I have my bank automatically transfer $250 on payday from my main bank account to my PLAN account. I then give my landlord postdated checks from my PLAN account dated for the first of every month or whatever day they want to get paid. My landlord is happy because they’re getting the rent check on the first of every month and I’m happy because in my mind I’m paying my rent every week when I get paid.
This PLAN system works for every bill that you don’t pay every payday. Rent is the obvious one, but another example might be car insurance. Remember, your PLAN account isn’t just for rent. You can also use it for annual bills. For example, you probably renew your car license plate sticker once a year. If it costs $120 per year, you need to put $10 per month in your second bank account or $2.50 every week into your plan account. Another obvious annual expense would be birthday presents or Christmas presents. In my business the busiest time of the year for people with debt problems is after Christmas when the Christmas bills come in. So plan ahead, decide right now how much you’re going to spend on Christmas this year. If you can decide in January, you have a year to save. The longer you wait in the year, the more you have to save each month. Decide what you’ll spend on Christmas presents, the turkey, and the trip to Grandma’s house and then divide it up over the number of pay checks you get between now and Christmas. If you want to spend to $1,200 this Christmas and you have 12 months to save, you need to transfer $100 per month or $25 per week from your main bank account to your plan account. If it’s six months to Christmas, you need to save $50 a week or you need to reduce what you plan to spend this Christmas.
If you want to make a budget for yourself, great, do it. But if you don’t have the time or if you’re afraid to get off track, don’t budget. Just do two things. First, pay your regular bills automatically from your main bank account every payday. Second, use a PLAN account to pay your projected bills that are coming up, your layaway purchases over the next few months, your annual bills and your needs to stay on track. It works. Try it.