Thursday, November 12, 1998

Painless Budgetting (with Software)
by Travis J.I. Corcoran ([email protected])

Many people have realized that the best way to make sure that there's money left over to invest for retirement is to pay for retirement first by "hiding" the money from themselves, using 401(k) paycheck-deductions.

Luckily, I got with the 401(k) program right out of college. However, after a few years went by, I realized that my retirement was the only necessity that I was routinely funding. Other easily foreseeable expenses -- Christmas presents, truck repairs, vet bills -- somehow ended up as surprises, depleting my checking account or, worse yet, pushing me into the red. I was making a decent salary, so the problem was clearly one of planning. Occasional attempts at informal budgeting didn't seem to help. While berating myself for not succeeding in budgeting (and musing that at least I succeeded in saving for retirement), it dawned on me that the only difference between the two cases was that the retirement saving was hidden from me.

With the aid of some financial software (in my case, Quicken, although I imagine that other brands could work), I set up several "virtual accounts" inside my checking account (Quicken calls these virtual accounts "savings goals") -- one for repairs on the current truck, one for the inevitable next vehicle, one for Christmas gifts, one for clothes... you get the idea. Then, on the same day that my paycheck gets auto-deposited, I used the software to set up repeating scheduled contributions from the checking account to the virtual accounts.

The end result? After a few paychecks, I had a couple of hundred dollars in the dog account, the same in the current truck account, fifty bucks in the Christmas gifts account, etc. Every week, after doing the week's finances on the computer, I had a rough idea of how much was in the checking account for frivolities, which I then spent at the local book stores (my weakness). Of course, this number was low, because I'd already hidden money from myself for necessary expenses.

The next time I wrote a $90 check for dog food and treats, I quickly transferred the same amount from the dog account to the checking account. Between the two transactions, the balance didn't change. Ta-da! The dog supplies were "free" because I had already set the money aside at various pay days, and kept it hidden from myself. When quarterly taxes were due, again, Shazam! the money appeared from out of hiding.

The moral of the story: if you have trouble saving, consider hiding money from yourself. You won't miss it much when it goes, but you'll be very happy when it magically re-appears!

[For more budgeting tips, head over to the Living Below Your Means message board.]

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