# Simplifying money management

On a given day of the month, the bank account balance says little about how much we can afford to spend because we must factor in regular expenses and automatic debit payments that occur at different days of the month.

Example:

On the 12th of the month, I have £1000 on my account. But £100 will be taken on the 15th by British Gas, £200 on the 17th by someone else, then £50, then more, and so really I do not own these £1000. Truly I only have £200 that I can spend as I please on that day.

Is there a way to know this instantly without spending 10 minutes doing maths?

(I thought about having many bank accounts in different banks, with automatic payments distributed among those accounts. And my main account would be automatically fill those accounts according to their respective purposes all at once on the first of the month, so that after that day, the money left is really my own. Not easy solution to implement though)

• Either you are very slow at maths, or you are living dangerously close to the edge. My assumption is that if I have to do arithmetic to the second decimal point and with a synchronized watch to decide if I can afford something, then I can't afford it. Commented Oct 15, 2014 at 1:34
• @jjanes Hmm. I don't carefully calculate my bank balance before buying lunch. But it seems quite reasonable to say, "I've been saving up to buy a new big-screen TV (or dining table or golf clubs or whatever). Do I have enough money now or do I need to keep saving for another month or two?" Sure, someone would have to be seriously confused to think he has enough money in the bank to buy a new house with cash when really he has \$4. But unless one has a good record-keeping system, how would you know if you have \$100 of spendable cash in the bank or \$1000?
– Jay
Commented Oct 15, 2014 at 17:43
• Create a budget every month. Don't use it only to track spending but to plan spending before the month starts. You can use a program or I use Google Sheets. Commented Oct 16, 2014 at 20:12

Track your spending and expected income -- on paper, or with a personal-finance program. If you know how much is committed, you know how much is available. Trivial with checks, requires a bit more discipline with credit cards.

• Many budgeting programs do indeed allow seeing recurring payments and income. They definitely have helped me scout out what 'freedom' I have. Commented Oct 14, 2014 at 22:37

Many banks will allow you to open multiple accounts. Create a secondary checking account that has no automatic withdrawals and doesn't allow overdraft. This is the account you'll use for you discretionary spending. Get an account with a debit card and always use it as a debit card (never as a credit card, even if it allows that).

Your employer may allow you to split your direct deposit so that a certain amount of money goes into this account each month. When it gets to \$0, you have to stop spending. It will automatically refill when you get your paycheck.

Personally, I have a little checkbook program that I use to keep track of my spending and balance. Like you -- and I presume like most people -- I have certain recurring bills: the mortgage, insurance payments, car payment, etc. I simply enter these into the checkbook program about a month before the bill is due. Then I can run a transaction list that shows the date, amount, and remaining balance after each transaction. So if I want to know how much money I really have available to spend, I just look for the last transaction before my next payday, and see what the balance will be on that day.

Personally, I always keep a certain amount of pad in my account so if I made a mistake and entered an incorrect amount for a check, or forgot to enter one completely, I don't overdraw the account. (I like to keep \$1000 in such padding but that's way more than really necessary, it's very rare that I make a mistake of more than \$100.)

In my case, I don't enter electric bills or heating bills because I don't know the amount until I get the bill, and the amounts fall well within my padding, and for just two bills I can factor them in in my head.

BTW I wrote this program myself but I'm sure there are similar products on the market. I used to use a spreadsheet and that worked pretty well. (Mainly I wrote the program because I have a tiny side business that I have to keep tax records for even though it makes almost no money.) You could in principle do it on paper, but the catch to that is that when you write payments on your paper ledger in advance of actually writing the check, you will often be writing down payments out of order, and so it becomes difficult to see what your balance is or was or will be on any given date. But a computer system can easily accept transactions out of order and then sort them and re-do the balance calculations in a fraction of a second.