Notice that I didn't title this as "the best way to bank", because it may not be. This is simply what works pretty well for us and we haven't had a late payment in years. Heck, we have emergency funds setup just in case the emergency fund goes dry. Before you roll your eyes and think it's impossible, know that I am a normal guy and not some super-suit executive - I just started early.
If you take a portion and implement it, great. If you have a tip that you use, I would love to hear it.
Day-to-Day Stuff:
Chase Checking Account A: This is where my paycheck goes and where the bills are paid from. We try to have bills first go to a credit card to collect enough points to pay for an annual vacation. We then pay off the credit card each month before financing charges are applied (don't try it if you cannot commit to paying the credit card off). There are NO debit cards issued to this account, only a checkbook if we need it - which is never. All bills are paid electronically and NO, I don't wait until the last minute to collect extra interest. I am not playing timing games, I have enough stress so I pay bills within 48 hours of receiving them.
Chase Checking Account B: This is my personal expense account. We transfer money here from Account A bi-weekly, when I get paid. Gas, Gifts, Personal Cell phone, etc. are paid from this account and the transfer amount never changes. Regardless of what I make, I get $150 per week. If I don't have enough to watch Monday Night Football at the bar with the guys, I don't go. If I win at poker, my winnings go here and the wife is none the wiser. If an event is coming up, I skimp in other areas to make sure I have enough money.
Chase Checking Account C: This is my wife's personal expense account. She currently gets $280 per week. She gets a lot more than I do because she is paying for the groceries and kids' activities. Nevertheless we treat it the same way as my account. If she doesn't have enough money for Girls Night Out, she doesn't go. When she goes 200 minutes over her cell plan, she gets docked. This forces her to clip coupons and be frugal. Before anyone says this is mean, know that we agreed on this before implementing it.
Harris Bank: We have a savings account in each of the kids' names here. This is for the kids' birthday money. Through online banking we also contribute random amounts of money each time we pay the bills. For example, if I pay the bills one day and the balance in the checking account shows $1123.30, I will send $3.30 to one of the kids' accounts. Kind of dumb, but its an easy way to keep money flowing into their accounts for college or whatever.
Back-up / Emergency Funds:
Chase Money Market: This is a holding account. I always want to have 3 months of bill-money set aside in this account. If I get canned, hurt, or otherwise cannot bring in an income, this will pay our way until I can find something else.
This took a while to save up, but it's there now. While it's not the best interest rate in the world, I'd rather have the funds there immediately if needed as opposed to make an extra $30/year.
Chase 13-month CD: This is the emergency fund. It took a minimum of $10K to open and that's what I put in. If something really bad happens and we go through the 'Jay got fired' money, we tap into this. It gets over 5% interest so we're looking at $600/year. Again, this took a while to accumulate so don't get discouraged or irritated.
Investment:
My company matches $0.50 on the dollar up to 9%. So I contribute 9% of my paycheck to 401K. I manage the fund selections myself and am pretty aggressive because I still have a while before retirement.
We had 4 other 401k plans consolidated and are now managed by Chase. This is one of the ways that we got out of all the service fees at Chase.
I have an account at Schwab with $0.02 in it. A long time ago I put in a couple thousand and bought a bunch of garbage. Believe it or not that $.02 is actually a share value, I hold shares of a stock now worth .0001 per share. Just don't do it, I wanted to try it out and I learned a lesson fast.
Business Accounts:
You guys may remember that I have rental property listed under my LLC. This is mainly for liability purposes, however you will run into people saying that an LLC is worthless. I just do what the lawyer says and it makes sense to me - if a tenant slips and falls, they can sue the LLC but not necessarily me.
Anyway, I chose a bank that was less than a mile from my house and had branches next to the tenants. The tenants just go there and deposit their money orders into my account using the deposit stubs I gave them. This account just grows based on the monthly profit. Each year we take money from this account as a 'paycheck' and then deposit it into the Chase IRA.
Paying Bills:
Quicken. We have used Quicken since 1999 and regardless of all the cute little tools and websites out nowadays, my opinion is that Quicken is the best option. I have a ridiculous amount of reports available and every expense has a category. To this day my wife makes fun of me because when we were saving for a down payment on a house, I actually entered a .25 gumball she bought from one of those vending machines.
College Funds:
We have 2 kids and the plan is to use the appreciation gains and monthly profit from the rentals to pay for college. I bought these things with 10% down and although the depreciation tax write off slows as the property ages, I will have a fair amount of money for the kids' college by the time I sell them. Plus, I am going to buy more at some point when I have time to find a new lender.
Like I said, some of this may work for you and I know it's not ideal. However, we have most things covered which unfortunately is more than most people do. Several years ago my income went from $28K to $44K in one year. I thought I was rich until I realized I blew it all and had nothing to show for it. Now that I am making substantially more than that, it's those early lessons that guide me.
Do yourself a favor - build a plan.
- Jay
This all makes sense but I cannot see getting all of these statements each month. How do you reconcile and balance your cheackbook?
I download everything into Quicken. Even without Quicken, a lot of my savings has come from this system so if I had to physically log everything into a checkbook, I probably would.
You may want to look into HSBC's online savings account for your backup holding account. It's just a regular savings account, FDIC insured, but it's currently making 5.05% interest.
Dan - good point and you are right. I've often thought about moving to an online savings account. With HSBC there appear to be no fees or minimums and that interest rate is solid. For people in Chicago, it's imporatant to note that HSBC is the company that bought the old Household International so use of their ATMs is free as well.
Full Disclosure - HSBC is a client of mine.
Is this a chase ad?
You have a good system in place, but I really recommend that you take a peek at the book "The Automatic Millionaire" by David Bach. Beyond just having a plan, you MUST pay yourself first if you are to have a prayer of ever being financially independent. It sounds like you may be closer than many, but I would hate to see you advocating your techniques and self-discipline to the readers of this blog when that doesn't work for very many people. Trust me, go read the book and you'll see what I mean. No, I'm not the author, just a satisfied consumer (and implementer) of its ideas.
VincePlatt @ Yahoo
I expected someone to ask that sooner or later.
No, we used to have everything at Citibank and actually liked them more. However we moved and the closest Citibank is now 10 miles away from us. Chase has a branch in my grocery store and a stand alone branch 1 mile the other direction. Just convenience really.
I was actually kidding about the ad deal.
And I've had waay(almost waaay) better experiences with Chase than Citi when a bank error occurs.
i wouldn't use deposit slips for your tenants unless the account number is redacted in some way. you wouldn't want them to know your personal checking account number, why your business account number?
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OK now that I have figured out how to post ha ha......
How do you set it up to have your bills paid by credit card? I have set up bank account bill pay etc and even have used Quicken bill pay (do they still print an actual check for God's sake?) but never figure out how to have my actual credit card be a source for paying bills. My mortgage is $7k a month and it would be awesome to get that as FF points on my Citibank or Chase credit cards. Any insights appreciated!
great little system... thanks.
So... who pays for dinner when you go out with your wife?
How do you manage planned large purchases like furniture or a car?
Lot of comments here. I will see if I can address what I haven't.
@Vince - I am sure its a good book. I will consider reading it but based on what I have seen in the reviews. The book's primary message is to ensure people pay themselves first via automatic payroll deduction - I already do this through my 401k. Like I said in the opening, this plan works for me but it may not for everyone.
@Rich - Good point. The account they are depositing into has a $0 balance unless they deposit into it so there is no risk. I totally agree that people should not give tenants a deposit slip to an account that has funds in it.
@Scott - thanks for your diligence. I am going to have Mark or Frank tweak this comment mechanism to make it a little more user friendly. I was confused originally too. Now, 7K per month is a whopper mortgage, my God. I haven't figured out a way to get a mortgage payment to go through a cc yet but I agree it would be nice. For normal bills I just call the company/utility and ask. About 30-40% of them allow you to do this.
@John and Anon - thanks
@Josh - well that's an ongoing debate that is usually solved by taking turns. Whomever is paying gets to choose the restaurant.
My only improvement would be what someone else already said. Use an online savings bank. As you already mentioned, HSBC is one. I use ING Direct and have been very happy with them. They also have some new security initiatives coming out soon. I'm also considering an account with emmigrantdirect.com. They have a 5% interest rate and I've heard that they are just about to raise it to 5.15% which would make them better than HSBC. Since this is higher than your CD, you can put that money in there also so it is even more liquid.
Yo Jay,
That is pretty cool stuff bro. I have a nice arrangement myself which I would like to share.
So I get my paycheck bi-weekly and have it deposited into Citi Checking A. On the first of every month I use an AFT from my Smith Barney FMA account to transfer my spending money for the month. At this point my rent is automatically pulled out by my landlord saving me a cool $50 a month and leaving me with no hastle - I will note that I am responsible enough to make sure that the money is always there for them. At this point my checking account is exactly at the minimum limit because my FMA pays me roughly 4.75% interest on cash balance as a brokerage/checking/credit/debit card - yea, it is that awesome! On the 15th when my paycheck goes into Citi Checking A I then transfer my money into a Citibank Direct E-Savings account which gives me a 5.00% interest rate - life is good!
-Thanks for the cool post dude.
Yo Jay,
That is pretty cool stuff bro. I have a nice arrangement myself which I would like to share.
So I get my paycheck bi-weekly and have it deposited into Citi Checking A. On the first of every month I use an AFT from my Smith Barney FMA account to transfer my spending money for the month. At this point my rent is automatically pulled out by my landlord saving me a cool $50 a month and leaving me with no hastle - I will note that I am responsible enough to make sure that the money is always there for them. At this point my checking account is exactly at the minimum limit because my FMA pays me roughly 4.75% interest on cash balance as a brokerage/checking/credit/debit card - yea, it is that awesome! On the 15th when my paycheck goes into Citi Checking A I then transfer my money into a Citibank Direct E-Savings account which gives me a 5.00% interest rate - life is good!
-Thanks for the cool post dude.
A 13 month CD doesn't seem like the ideal place to hold an emergency fund. Let's say that, god forbid, something happens and you need to withdraw the money on the second month of your 13 month CD contract. You would lose a big chunk for withdrawing the funds earlier. There's no liquidity in CDs and online savings rates are very competitive these days. Another thing, an emergency fund amount should be based on average time that a person needs to find work (according to specific skills) and the average time it takes to recoup from disability. However, my emergency fund is even higher because I include the price of an used car, in case I get into an accident and go to hospital for a few months (disability). I save money on car insurance by doing that. Regarding paying mortgage with credit cards, it doesn't work because reward points for this type of transaction is not accepted by credit card companies.
Hey Lorenzo - my CD is the emergecny fund's emergency fund. The first line of emergency funding comes from a Money Market account where I have 3 months of full pay sitting (which equals roughly 5 months of expenses). So I would have to go through all of that in order to need the CD funds.
Nevertheless, I agree that those funds could be more accessible and I have been looking at HSBC's online savings program as a replacement.