How to Budget: Set Up a Fixed and Variable Checking Account

Set up a bank account for your fixed expenses and variable expenses. I actually learned this approach from one of my students shortly after I began teaching classes on money management for couples.  This is an approach that my husband and I use and it has been incredibly effective for us.

Set up two checking accounts at your bank:  one for your fixed monthly expenses for things like your mortgage, health insurance, phone bill, car insurance, debt payments that your paying on (car loans, student loans), utilities and your savings.  Set up the other checking account for your variable expenses: things like groceries, gasoline, dining out, recreation, clothing, medical expenses, household purchases and miscellaneous.

Refer to your spending plan to calculate how much money needs to go into your bank accounts each month.  Make it a priority to put money into your fixed checking account first and your variable checking account second.  By having two separate accounts for your fixed and variable expenses you’ll never spend money that was intended for a necessary living expense like your mortgage on a fun unnecessary expense like dining out.  This system also works well for self-employed professionals–all you do is transfer money into the appropriate fixed or variable bank account as it comes in.