Personal Finance - Personal Cash Flows

[shoestring]

This is one of those oddball questions which really has nothing to do with investing per se but the responses might be interesting.  Rather this is a question about behavior with money.

The question is, what does your personal cash flow look like?

I will use myself as an example.  Being a salaried stooge, I have the benefit of a boring, constant stable pay check at the first of every month.  This shows up in a checking account.

Now before I see it, chunks are flayed out by the government, and then a chunk is set into my tax deferred savings.

The take home pay comes to me.  Immediately three things happen in this order:

1.  I shove some of it away into a special savings account.  We'll call this the Special Account.

2.  A big chunk of it goes into another savings account we'll call Annually Recurring Expenses.  These are things I tend not to have to buy every month necessarily, but they do tend to come up once or more within 12 months.  I do have one item that's every 24 months, but since it's pretty predictable I just save cash for it anyway.  I tweak this amount slightly each month as my goals and circumstances change.  It's really only one account but I break it out to something like 35 sub accounts on a spreadsheet.

At this point I am left with the money that's going to blow out the door in 30 days or less.  This just stays in the checking account it was deposited into.

At this point the lion's share of my spending is done almost as immediately.  It just goes right out the door since a lot of my bills come in around the 5th-7th of the month.  Honestly in the first week of a given month I do 70+% of my spending for that month.

The entirety of the month I keep a running tab of all money spent for anything.  Once I reach as much as I got paid on the 1st, I'm done.  Seriously I'm done.  I can't buy anything else.  I count anything I put in a savings account as an expense for these purposes. 

I have set limits for how much I can spend on certain categories too, but some months I rob from one to add to another.  Like this month I took some extra trips so I would up driving more so I used an extra 10 gallons of gas, but efficient grocery shopping meant I didn't spend very much on food so I diverted funds accordingly.

At the end of the month I sweep all allowances for any unspent amounts.  This goes into yet another account, one I keep in case I should go over in a category one month.  If the balance in this account ever got very high I'd sweep it into the Special Account, but it's never very much because I keep it running as lean as possible to begin with; mostly what gets put in there is a result of credit card rewards.  The idea is that if we have another record hot snap in July again, I have budgeted enough to pay the power bill but on an average basis, so I need to keep the surplus from cheap months. 

What happens in reality is I do everrything in my power to not go over the allowance ever or find ways to save in other categories that month so this little account keeps building up here and there.  I'm not consistently good at figuring out the exact pattern of the kinds of expenditures but I generally have a strong feel for the total.

I then check the Special Account balance.  If it's enough to invest that month (I don't like to invest terribly small amounts due to fees, costs etc.) I then do so.

I track all expenses to the penny, save for cash purchases.  When I take cash out, I expense it right away to whatever category.  I record all expenses immediately.  If I incur an expense that will be paid later, I record the expense, write the check ahead of time, schedule the payment online, etc. etc.

The impetus here is that I have been told all of this is absolutely unnecessary and that it is, quite frankly, batshit insane and sensible people have one checking account and one savings account and do not do such things.  Well I'm not changing I don't care if it is crazy. 

It's certainly poor (non)accounting, all I'm really doing is adding up a column of numbers until things get to equal to another number.  I used to keep a personal general ledger and could actually generate personal financial statements for myself.  But that was ridiculous and too much work for no real purpose.

But I am curious if I'm really that complex compared to others.

[hoost]

This is one of those oddball questions which really has nothing to do with investing per se but the responses might be interesting.  Rather this is a question about behavior with money.

...

But I am curious if I'm really that complex compared to others.

shoestring,

Great question.  I am actually very similar to you.  I am paid a base salary once every two weeks, plus I get paid extra when I'm actually working. (I work on oil rigs and receive a day rate, so my paychecks can be up to 3-4 times my base salary but vary based on whether I'm working or not.)

As such, I've planned my spending on only my base salary, so I run my "required" expenses off that number.  Whenever I find out how much my check will be for that pay period, I calculate how much is left over and decide where that extra money will go.

Currently, the extra money goes to pay off debt (I managed to bury myself under a large pile of student loans).  Once I'm done with that, most of the extra will go toward the purchase of a house. After that's done, it will be into my early retirement funding (in the PP).

As far as the means of accomplishing this, I used to use a spreadsheet, coupled with a few envelopes for actual cash for things like groceries, entertainment, and clothing purchases.  The spreadsheet had about 30-40 rows (actually probably more) with running totals to break apart savings accounts and monitor spending as well as track yearly outflows for each category.

I have recently begun using mvelopes.com, which I find much more convenient.  I will be getting married in a few months, so it's been very helpful to use this mvelopes to make sure my fiance and I are on the same page with spending and can keep track of all of the cash flows.  We fund all of our various envelopes with our pay checks when we receive them.  Then whatever spending we do gets put in as a pending transaction.  That amount gets deducted from the envelope we choose, and when the transaction clears the bank, we just hit the button to match them up and we have a record of our spending.  There is an android app for the service as well, so we can view our envelope balances and input transactions as we make them, which makes it really easy.  Once we are married we plan to have a joint account, so this would allow us to both be able to buy groceries with money from the grocery envelope and simply input the transaction.

I have found that if I don't assign a "job" to each dollar before it comes into my account, I will waste it on frivolous things.  This helps me stay focused and work toward my goals of being debt free, and eventually being able to choose to work rather than have to work. I also give myself a small (to me) budget for frivolous spending so that when I do get the urge to buy something random, I have already set aside money to do it and don't steal from other envelopes.  Some people have more self control and are more frugal than others, but I've found this works for me.

I like working on a cash only system (using debit cards), as I've found that the more debt I've paid off, the more relaxed I feel.  I keep an emergency fund for unplanned expenses, fund envelopes in advance of anticipated spending needs.

[Odysseusa]

This is a great topic, shoestring. Thanks.


Personally, I see investing/trading in Permanent Portfolio and Variable Portfolio as running my own business. Each month, I expect to profit from it consistently and safely using my own capital. I expect to make 10% annually, or almost 1% monthly, and use the investing/trading profit to cover my family expense. That's why I do not emphasize putting my capital in 401K/IRA unless my 401K matches some of my contribution due to many restrictions being placed on 401K/IRA accounts. I prefer to allocate my capital freely without so many rules and regulations from the government that are being placed on 401K/IRA accounts.

Another thing that I want to mention to me it is more like a myth that the media often sell the hype of the idea of retirement. Please do not wait until retirement to live our lives now fully and appreciatively. We do not know what the futures are like so live our lives like it is our last day. Make the presense/each day special and don't wait for the futures to do what we love. Do the things that we love right now because time is much more precious than money...