It used to be that once a year I’d get on a kick to try and get my finances in order. I’d whip up an excel spreadsheet and try to keep track of my expenses down to the penny while simultaneously trying to figure out how much to save. That would last about two weeks before I would throw in the towel!
I needed something simple and flexible that I could stick with and ended up creating a system that I call my four “A, B, C, D” accounts. This little mnemonic helps me remember the four bank accounts I need–Activities, Bills, Crisis, and Dream. Thinking about it as “A, B, C, D” is an easy way for me to remember not only what money goes where, but how I should be using each account.
This is definitely not the traditional budget that you’ll see laid out on finance sites but it’s the one that has helped me get my money in order. The best budget is the one that you can stick to and that works for your lifestyle! So if you haven’t yet mastered the art of budgeting and need a better way to control what you spend, these four accounts might work for you.
This account is where all of my fun stuff happens and is the “wants” not the “needs.” Whether I’m going out to dinner, shopping, or heading out for a night with friends, my budget for anything that is not a recurring bill comes out of account “A”. I have my debit card linked to this account only to resist the temptation of using any other accounts for non-essentials. This separate account makes it easy for me to see immediately how much fun money I have left in any given month, and I’m much less likely to go to the effort of “transferring” out of another account just to hit up another sale. Having an account like this also makes it easy to see where I can cut back on fun expenses if needed. If I’m feeling aggressive about my savings goals from time to time, I might decide to sweep the balance into my “C” or “D” savings accounts below at month’s end if anything remains.
Account “B” is all business! This is where I keep a fairly exact amount set aside monthly for the recurring bills I know I’m likely to encounter throughout the month. That means rent, phone bills, car payment, insurance, and anything else that has essentially a set amount- including any debt payments. Out of all of my accounts, this is the one I basically set on “auto-pilot”. Account “Bills” is also the account I have my paycheck deposited into. From here, I transfer to all of my other accounts as needed. I’m also lucky enough to have my employer willing to split my direct deposit into two accounts, so I have my paycheck set to split between my “Bills” account, and the next account, my primary savings.
My crisis account is my immediate savings account that I draw on for the unexpected. I aim to always have three months of living expenses set aside. It took a lot of skipping my regular Monday morning latte to get there, but small, consistent savings goals over time finally made it achievable! I started out contributing 5 percent of my paycheck and then moved that up a percentage or so every few months over time. This is also where I draw from for things like an unexpected dental bill or a flat tire; near term expenses that I didn’t anticipate!
This is the place where I save for the things on my bucket list. Whether it’s my next big vacation or supporting my very long term goal of owning a home, this is where I’m putting my long term savings that I don’t dip into. This isn’t my rainy day savings, this is the place where I save for the very important things that I’m working toward. Splitting up my savings accounts between “Crisis” and “Dream” has really helped me get more in tune with my personal long term savings goals. It has also motivated me to be more willing to set that money aside every month. After I hit my primary savings goal in my crisis account, this is where I started to put all of my savings. If I dip into my crisis account, then I take a break putting money here and build that up first to the level I’m comfortable with. Also, while interest rates are still universally low, this account is also my opportunity to seek out a slightly higher rate in a savings product that I don’t need to withdraw from.