This step is where my system differs from most budgeting systems. In my cash-flow system you are going to make the funding and paying of your recurring expenses automatic. First by actually transferring the recurring expense amounts we calculated, per paycheck, into a separate bank account. Second, by automatically scheduling bill payments out of this separate account. By doing this, you are segregating your money to make sure it is available when it comes time to pay your recurring expenses!
Set-up Automatic Transfers Into A Separate Bank Account
With the advent of on-line banking, I recommend setting up a savings account at the same bank as your checking account. You will then set up an automatic recurring transfer, at the same frequency and date as your paycheck, from your checking account to your savings account. So if you are paid twice a month, an automatic transfer of $950 would be scheduled on the 15th and the last day of the month to cover your monthly recurring expenses of $1,900 from Step #2. If your are paid weekly, you would set up a recurring transfer of $475 every Friday from checking to savings. Many employers allow you to split your direct deposit each payday. Therefore, this is another method of funding your recurring expenses account. This works well if you want to use another institution than your checking for your recurring expenses account.
Set-up Automatic Payments Out of the Separate Bank Account
After automating the funding of the recurring expenses account, you also want to make bill paying as easy as possible. You definitely want to avoid transferring money back to your checking account to pay your recurring expenses. Therefore, go into the on-line banking bill payment tool and select your savings account to pay your recurring expenses. Conversely, you can also log onto the website of the vendor and set up automatic withdrawal from the savings account. Make sure to providing your saving account number and bank routing number. Paying your bills will be so easy because you have automated both the funding and payment process. Additionally, you will have peace of mind knowing the funds are there to cover the recurring expense!
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