Saturday, September 13, 2008

Parking Bucket: Using a Free Checking Account

After you contribute to your 401K, part of your salary will go to pay for social security and income taxes, and whatever is left will be your take home pay (see the two pipes that come out of the first bucket in our sketch).

Your take home pay should be deposited in a free (no fee) checking account (you can google “free checking account” to find banks that offer them).

From that account you will pay for all your expenses (rent, gas, food, credit card bills, etc.) either by check or automatic payment (I try to put all my expenses on auto payment; one of the most important goals of a sound financial strategy is to simplify your life).

Hopefully, after you make all your payments you will have some money left. If you don’t, or if you have too little money left, you are either making too little money, spending too much, or both.

This is the time to start keeping a budget of your expenses. You can find many good budget spreadsheets here .

Use any of those budget sheets to religiously write down your monthly expenses and see where you can make cuts. Some areas where you usually can save money are:

• Gym subscriptions that you don’t use
• Magazine subscriptions (cancel them and read the magazines online for free).
• Pack lunch instead of eating out every day
• Plan your routes carefully so you don’t waste gas wandering around
• Don’t go out to clubs or restaurants every weekend
• Cut and use grocery coupons
• Etc.

After three or four months of monitoring your budget carefully you will have a good idea of where you can cut costs. If this is still not enough, get a part time time job to supplement your income.

For more on making a budget, follow some of these links:

How to make your first budget

How to make a budget and stick to it

How to make a budget that works

After all your expenses are paid, move whatever money is left to your Short Term Bucket.

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