A few days ago I heard a financial advisor** speaking on NPR and one thing he said made a lot of sense. I’m implementing it immediately and thought y’all – our readers – might like to hear it: Maintain 2 checking accounts.
Use the 1st checking account to deposit your paychecks and pay the Big Bills – mortgage, car payment, insurance, etc. You should always have a ballpark idea how much is in the account and it should never go into overdraft status.
Use the 2nd checking account as The Allowance Account for the little stuff and play money. Fund this account with a set amount every month. Here’s the important part: ask your bank to remove the Courtesy Overdraft Protection. That way, when it’s gone, it’s gone and you can’t spend any more that month. “Courtesy Overdraft Protection” is really bank-speak for “we’ll let you spend more money than you’ve got but we’re going to whack you a big fat $35 fee for doing it”. Get rid of that “protection”. You need it about as much as you need protection from the Mob.
This seems brilliant in it’s simplicity!
You can individually decide what qualifies as A Big Expense and gets paid out of the Big Account. Grocery money? You choose whether it’s A Big Expense or comes out of the The Allowance Account. Same thing with dinners out, prescriptions, gasoline, gifts, etc.
Readers, I’d love to hear your reactions to this money strategy. Or other tips you use to keep your spending in line and under budget.
**When I went to find the link to the guy’s audio interview,
I realized he’s a finance reporter for MSNBC.com.
Bob Sullivan is the author of
Stop Getting Ripped Off: Why Consumers Get Screwed and
How You Can Always Get a Fair Deal.
Sullivan blogs for MSNBC at The Red Tape Chronicles.
Click to hear Bob Sullivan’s Fresh Air interview with host Terry Gross.
(39 minute audio interview)