• How We Budget, Part 2: Monthly Cash Flow

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    Yesterday we laid out the flow of our money per month when it comes to accounts. But how do we allocate those funds once we get them?

    In order to showcase my expert Powerpoint skills, I’ve created another diagram to show how our money flows. As usual, clicking it will bring up a bigger version.

    cashflow.jpg

    This cashflow scheme is based off of the 60% solution of budgeting and saving. Out of our paychecks every month taxes and funds for our retirement accounts (of which we get matching funds for) are deducted. After that, we both get a small amount of money per month for our own personal use. Our fixed monthly expenses are then accounted for; these are generally fixed or within a few dollars of a base amount. We then have a set amount that is deducted from our accounts that goes into savings. Lastly, the remaining funds go towards are non-fixed expenses. Any money that is not spent from our non-fixed expensed then gets funneled back into our savings account for the month.

    In creating our budget, we’ve managed to include many of the mantras floating around the personal finance blogosphere. Our system allows us to to pay ourselves first and last. In order to make everything go smoothly, we put mostly everything on automatic; the fixed expenses and savings are both automatically deducted from our accounts so we never get to really see the money.

    In order for this system to work smoothly, the money that moves into and out of our accounts follows a highly choreographed dance. I get paid twice a month; Her gets paid every other week. Therefore, we treat Her’s pay as if she gets paid twice a month, with the three paycheck months treated like a “bonus.” Taxes and retirement get deducted every pay period, obviously. Savings also gets deducted each pay period. As long as we stick to the amount we’ve allocated for our non-fixed expenses, we generally have enough cash in our checking account to pay for our credit cards bills as they come in every month.

    On Friday, we’ll show you how we keep track of our non-fixed expenses. It’s the easiest part of our budget, allows us to be flexible, and most importantly it allows us to have some freedom when making purchases.

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