Friday, March 4, 2011

Petty & Bills

I don't know how many people do this, but Brittni and I have a couple different checking accounts. All of them are joint, but each serves a different purpose.

Our Process

Every week we get paid, and our paycheck is deposited into our primary checking account: Petty Cash. From this account we transfer individual amounts needed to fulfill recurring payments and checks into our Bills account. For example, if I know my on of our bills, lets say our Energy bill, is $200 this month, I transfer $200 from my Petty Cash account into our Bills account and the Gas/Electric company deducts the amount from there.

Why We Transfer Individual Amounts

I've found that it's a lot easier to track where your money goes if you transfer individual bill amounts instead of just one lump sum for all the bills you need to cover. For example, knowing my Energy bill is $200 and my Car Payment is $300, I would not transfer $500 because looking at a $500 transfer on a bank statement doesn't give me a clue as to what this money is for. In contrast, a transfer of a familiar amount on your bank statement (such as $300 for a car payment every month) immediately lets to know why that money was transferred and where it's going.

This also helps when the funds get withdrawn by the biller. Using my Energy bill example again, if you put $200 into the Bills account you expect to see a $200 deduction at some point in the future. Money in..., then money out. Makes your statements look much less foreign as you can identify each transaction just by recognizing the amount. 

Also, the fact that you can add Memos to your transfers (at least, at my bank you can) give you a really good idea of where you money is going or where it went.

Why We Have A Separate Account For Bills

Call me "New Age", but I think checks are just so "Old School". I can't tell you how annoyed I used to get when people/businesses took months to cash/deposit a check I sent them. Especially when you have multiple checks out there waiting to be deposited, it makes it really difficult to know how much money you actually have in your account. Of course, if I actually had a check book (I don't, all my checks are sent via my bank's Bill Pay) I could do that balancing thing my Mom used to do, but I never got into that. It's 2011 for goodness sake... pencil and paper, really?!

Anyway, when you have a separate account that is JUST for the checks you wrote or the automatic withdrawals from billers, whatever you have left in the OTHER account (ours is called Petty Cash) is the money you really have to spend on non-bill things (like groceries, gas, entertainment, etc.) or adding to your debt snowball. AND you are never deceived into thinking you have more money at your disposal than you really do; once you transfer the money to your Bills account, consider it gone. Lastly, this also protects you from buying non-bill things (like groceries or gas) with the money you intended to use to pay bills.

Now when you look at your Petty Cash account and you see it's nearing $0, you know you're really running out of money. In the same situation, but with a joint Bills + Petty Cash account, you could be nearing $0 of your spendable money, but the account may have still have $1000; only problem is, you have to remember you can't spend that money because you either wrote checks for that amount or your billers will be withdrawing some of that.

The Question

Having a separate accounts for Bill Payments and Checks has worked for me for a long time (about 8 years) but I'm wondering what other methods people use to keep track of money for Checks & Auto-Withdrawn Bills, and money for your debt snowball or other non-bill items.

Am I making this too complicated? Do you use the same method we do, or do you have your own?

Thursday, March 3, 2011

Our Debt

In my previous post, I said that we started out Debt Free Dive on January 1st, 2011. I lied... sort of. We've been trying to get out of debt ever since we got married in December of 2008, but until January 1st of this year all we ended up doing was spinning our wheels.

Some History

My wife, bless her heart, was never really taught how to manager money. "I thought a credit credit was just a way of getting free money" she said. When she turned 18, she went off to YWAM in Kona, Hawaii for Disciple Training School to become a missionary. The combination of her generous heart and her desire for MAC Makeup resulted in a maxed-out Macy's Credit Card and medical bills she couldn't afford to pay.

My story was a little different. I was frugal as a kid, and saved all my money, and I got a full ride to the University of Michigan on a Track & Field scholarship so I didn't have that to worry about... but that all changed when I actually went to college. I had some bad influences in my life at that time, and I actually remember trying to convince my Dad that having lots of debt was OK because it was something I'd be dealing with my whole life anyway so why not have everything I wanted now instead of having to wait?! Wow, I was so arrogant and idiotic. By the time I got married to my lovely wife I had almost $10,000 in credit card debt and about $24,000 in student loans. I was only 24.

When It All Changed

One little tid bit I left out of our history was that I had to sell my paid-off car (which my Mom had provided to me as an incentive to get a college scholarship) in order to pay for our wedding. Even after that, I will had around $7,000 in credit card debt. I remember seeing the young kid who had bought my car drive away and just feeling like I had lost control somewhere along the way and something had to change.

From that point on, my wife and I tried really hard to make our lifestyle as debt-free as possible, but it was hard... really hard. Between lifestyle expectations and disagreements about where our money should be going, my wife and I struggled to find a methodology with which we could both live. I mean, who really wants to give up going on a mission trip when you can just put it on a credit card and worry about it later? Seems like something nobel to do, right? Of course, it wasn't a bunch of mission trips that put us into so much debt, but once you realize the tough decisions you'll have to make as part of a commitment to becoming Debt Free you start to question whether or not it's worth it.

Our Debt

At it's worst, this is what our debt looked like:

Ugly. Very ugly. However, once we made some lifestyle changes and a concerted effort to get out of debt, those numbers changed dramatically. This is where we're at today:

I'd say that looks a little better! The major thorn, I mean credit card, is completely paid off, another credit card is paid off, and a student loan and another credit card are very close to being paid off! We'll be tackling this in a hurry, and YOU get to be a witness! Can I get an AMEN?!

The Beginning

On January 1st, 2011 my wife and I began our Debt Free Dive. Our history of debt and poor financial decisions was long, and we are young, so we've got quite a mess to cleanup, but there is hope! I was inspired by a guy you may know, Dave Ramsey, who preaches "Debt is dumb, cash is king" backed by biblical principals such as Proverbs 22:7 which says "The rich rules over the poor, and the borrower becomes the lender s slave". Before we began our Debt Free Dive we certainly felt like slaves to the borrower, and I certainly bought into all the lies about "You'll have loans your entire life, that's just the way it is" or "You'll always have a car payment" and "Credit Cards a good because they help you build credit". How ignorant I was! Maybe you can relate?

The reason I'm starting this blog is because I think I do things a little differently than others out there in managing our money, and I wanted an opportunity to share some of our family's practices in hopes that it could help someone else out there. With that said, here's a little introduction to what this blogging series will be like:

So, we'll be sharing things like our weekly budgets, money management tools, and stories of how tackling our debt has both blessed and challenged us. Subscribe to this blog, and to the Debt Free Dive YouTube Channel, to follow along on this journey.