She Strengthens

New Year, New Finances: Streamlining Your Financial Setup

As the year comes to a close, it’s the perfect opportunity to reflect on your financial progress and identify areas for improvement. One crucial step in achieving your financial goals is to organize your financial setup. But where do you start?

Simplistic Beginnings

Before I took control of my finances, my setup was far from optimal. I had one checking account and one savings account, with most of my money sitting in the checking account. This simple approach might seem convenient, but it’s not the most effective way to manage your finances.

A New Approach

After getting married and merging our finances, we realized we needed a more structured approach. We now have one main checking account, three online savings accounts, and investment accounts. By understanding our cash flow, we can determine the right amount to keep in our checking account.

Understanding Your Cash Flow

To optimize your checking account, you need to know three essential numbers:

1. Your monthly income
2. Your monthly expenses
3. When your bills are paid

With this information, you can create a plan for your checking account and avoid overdrafting. For us, we start each month with $3,000 in our checking account, which fluctuates based on our paychecks and bill payments. Our lowest balance is around $700, which acts as a buffer and mini emergency fund.

The Benefits of a Zero-Sum Budget

We use a zero-sum budget, where every dollar is allocated towards specific purposes. This approach helps us avoid overspending and ensures our money is working towards our goals. We also automate our bills and savings transfers, and our bill schedule is balanced throughout the month.

Why We Keep a Low Buffer

We choose to keep a low buffer in our checking account for three reasons:

1. Reduced temptation to overspend
2. Maximizing our money’s potential by investing it in savings accounts, 401ks, or debt repayment
3. Increased security by not keeping all our funds in one place

Improving Your Financial Setup

Take the time to analyze your own financial setup and identify areas for improvement. Ask yourself:

• Are your bills automated?
• Could you benefit from switching your bill due dates to the same day?
• Do you have too much money sitting in your checking account?

Consider opening an online savings account to transfer excess funds and earn higher returns. Research reputable companies like Ally Bank, Discover Bank, or Capital One 360 to find the best fit for your needs.

Finding the Perfect Balance

The key is to find the right balance for your checking account. Keep too little, and you’ll risk overdrafting. Keep too much, and you’ll be tempted to overspend. By challenging your current approach and making small changes consistently, you’ll be on your way to achieving your financial goals.