Evening Latte

I think it’s pretty common for people to be informal about their everyday financial activities as long as things are generally good. Pay bills when you get them, have a rough idea of spending, and schedule/move things around for larger purchases. There’s nothing inherently wrong with that, but I’ve found value in setting up a “financial month” by organizing things around a month-long period, including adjusting things so expenses are aligned with/spread across my paychecks. The benefits:

• At the end of each financial month, I know how much money I made or lost during that time period.
• It’s a natural way to encourage savings during months with an overage. Under a less structured setup, people tend to simply spend it or hesitate to move funds into savings because an unscheduled bill or expense might come up soon.
• It makes forecasting a lot easier. Breaking things into (relatively) small standardized chunks of time allows you to say “This is how much I’ve spent each day so far, and here’s what things would look like if that continues until the end of the period.” This is similar to the logic behind periodic financial reports and agile software development.
• It helps plan for larger purchases. If you know a large purchase or expense is coming up soon, you can set a savings goal for each intervening financial month.

A central part of my setup is using credit cards to pay for as much as possible. Using at least one good rewards card for all spending is a good idea if you have appropriately disciplined spending, and it also means you can aggregate your expenses at a date of your choosing since all major credit cards allow you to adjust your payment due date.

Using a debit card can work, but you’ll probably want to adjust the model to pay down each deposited paycheck (get paid, then spend) as opposed to building up credit card balances that are then paid off with a paycheck (spend, then get paid).

My Situation

• I get paid semi-monthly (generally 1st and 15th), and each paycheck is identical since I’m salaried exempt.
• I make my housing and vehicle payments on the 1st of each month. Combined, they are a significant percentage of my paycheck, so I don’t schedule any other payments at that time.
• I’ve adjusted the due dates of all my credit cards to make their statement dates (not due dates) hit around the 16th of each month to align with my other paycheck.
  • Based on the three companies I use (Citi, Capital One, Chase), a due date of the 10th-13th will result in a statement date on roughly the 16th.
  • Example: If my due date is April 12th, my statement date will be March 16th (or the day before/after).
  • Each company is a little different, so you may have a fine-tune over time.
• I pay for all my purchases and other bills with rewards credit cards.
• I pay off the full balances of all cards shortly after their statement dates (not due date) so I never pay any interest.

This means that the only times I regularly pull money from my checking account are making my housing/vehicle payments on the 1st of each month (can’t pay those with a credit card) and paying off my credit cards around the 16th of each month.

I have a spreadsheet in which I enter the estimated recurring expenses for that month, the current balances of each credit card, and any upcoming ad hoc purchases. The sheet then calculates my current profit/loss for the month, estimated profit/loss at the end of the month (based on current per-day spending), and per-day spending allowance for the rest of the month (based on current profit/loss).

Most people aren’t going to build a spreadsheet that complex (at least at the beginning), but I encourage everyone who tries this to at least have some way to determine the end result of their financial month, record that somewhere, and plan for what to do with the overage or shortage in advance. Then you can decide whether you want to get any more detailed in your budgeting/planning/forecasting.

My specific setup obviously doesn’t work for everyone. If you get paid weekly or monthly, your expense/payment scheduling will be different. And if you’re paid hourly, you’ll need to estimate your future paychecks, which might vary a bit because of weekends, holidays, and shorter months.