A simple system to track your finances


As you know, an important part of planning for retirement is making a budget. This requires tracking your money flows. Without knowing what are your income and expenses, it’s difficult to know how prepared you are for retirement.

But it can be a bit overwhelming to create and maintain a detailed budget. There are free online budgeting tools that can help. A budget that takes significant work to keep up, is one that’s not likely to be followed. Fortunately there’s a relatively simple solution.

NerdWallet’s Anna Sergunina proposes a workable system that she uses in her family. You can see the full article here. It’s based on two main checking accounts, one for fixed costs and the other for variable costs. Fixed costs are those that are the same each month, and you have no choice in paying. These include insurance, mortgage and property tax, electric bill, and cell phone. It’s important to note that saving for retirement is also included in fixed costs. Variable costs include groceries, dining out, and travel.

The system also includes a high-yield savings account called a “curveball account.” This is for unforeseen expenses like emergency medical bills or home repairs. Many financial advisors recommend keeping at least six months of living expenses in an accessible account, just in case of a sudden loss of employment or income. This is an account that you don’t access very often, so it’s in a savings account that allows a couple of withdrawals per month.

You allocate your paycheck among the two main accounts. You put enough in the fixed costs account to cover monthly costs, plus a little extra in case of unexpected changes. Then the money comes out of the fixed costs account automatically each month.

The beauty of this system is that, once set up, much of the hard work is done for you. As you allocate your income between your two accounts, you know exactly how much is coming in and how much is going out, and where it’s going. You know how much goes to your fixed costs and how much you have left over for variable, or discretionary, costs.

Another important feature of this system is it includes savings as part of fixed costs, which they should be. Many people think they don’t have enough left over each month to save for retirement. This system forces you to “pay yourself first,” and makes savings as high a priority as your mortgage and utility bills.

If you decide you want to save more, you know what adjustments you need to make in your expenditures. For example, you might switch to a cheaper cable or cell phone plan to reduce your variable expenses.


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