I promised a friend awhile back that I would explain how I automate my finances and budgeting, and how I get away with absolutely zero of the nonsense banking fees that have been added due to the Obama administrations recent changes and the greed of the banking industry.
I currently (though that is about to change, see note at bottom) use three banks, one for spending, one for business, and one for everything else. All of the magic happens with my CapitalOne 360 account, the others are pretty tame in comparison.
I started using CapitalOne 360 in February of 2006, before they offered a checking account. At that time I signed up for the 6% APR on savings. Since then they added checking and the ability to automate transfers. Along with these, it can link to 3 outside accounts to pull money from or push money into. They also have no fees for almost everything. Only fee I have ever paid is a reasonable $20 to next day a cashier’s check. If your primary banking is done with a large brick and mortar bank that charges fees, doesn’t make it easy to transfer money, doesn’t let you add a savings account in seconds, and doesn’t allow you to easily transfer money between banks, I would highly suggest changing banks. (I would add that they have a high interest rate, but by today’s standards .5% is high. Most banks still pay around .02%, so .5% is high in comparison, but unless you have very large amounts of money that you keep in savings for some reason, it is too negligible to matter.)
I have my paycheck direct deposited into the “Electric Orange” checking account with CapitalOne 360. From there, the CapitalOne 360 system distributes money to some of my 16 savings accounts, to my Perkstreet checking account for spending purposes, and when I have room to invest in my Roth IRA or mutual fund some of it also goes to Sharebuilder (another of their services)
Before explaining how that works, I’ll explain the purpose behind the savings accounts.
- The checking account is a landing zone for my paycheck. It also has a $1,000 line of credit attached to it, that also has no fees, and a reasonable interest rate. The automation tends to have Friday withdrawals coming out before paychecks go in, so for an hour a week it sometimes goes negative. This costs me about 3 cents a month thanks to the line of credit. The earned interest on this account alone pays at least ten times what the interest charged is, so it works out fine. This could also be used like a credit card if one so desired.
- Emergency fund is where I keep a little cash for emergencies. When it is below the preferred balance a fixed amount is pulled from the checking account every paycheck. (Unfortunately, CapitalOne 360 doesn’t have the option to program it to only pull when below a certain balance, though I wish they did.)
- Investment savings is used for money to either distribute to LTS or either of the Sharebuilder accounts. I sometimes also keep short term investment money here.
- LTS stands for Long Term Savings. Money that is being saved for a long term investment goal. This is fed from the Investment Savings account.
- The Sharebuilder accounts can be pulled from by Sharebuilder.com to invest in either my Roth IRA or Individual Mutual Fund accounts. (For brevity sake I won’t be going into detail as to how that works, if you have a Sharebuilder account it should be easy enough to setup.)
- Apartment reserves is money coming in from, and saved for, the apartment building I own. This is pulled from my business checking account with U.S. Bank automatically on the 1st of every month.
- House taxes, State Tax, Truck Insurance, and Webhosting accounts are to save for annual fixed expenses. A fixed amount is pulled out of checking every month to save for these expenses. When the time comes to pay them, I merely move the amount to checking and go to the Bill Pay section and have the check mailed out.
- Truck is savings to replace my truck when the time comes. I estimate that I’ll replace the truck in ten years, and divide the amount I expect I’ll pay for a new truck by 120 and pull that amount in every month automatically from the checking account.
- Toys is a fund to try to keep my electronics and books spending under control. I move a fixed amount to it every paycheck, and when I spend on toys I transfer the money back to the checking account, or to the spending account, according to which I spent from.
- Giving is money saved to give to charities or needy. It is a predetermined fixed amount out of every paycheck.
- Utilities is money held back every month to cover my electric bill. In Illinois, and to a lesser extent in Louisiana, electric bills tend to fluctuate based on the weather. Spring and Fall months are cheap, Winter and Summer are considerably more expensive. To balance these out a fixed amount is put in every month, and the amount needed to pay the bill comes out from this account. This effectively evens out the bill so every month I spend the same amount. Power companies offer this to customers as “budget billing.” They tend to charge for it, and they make a little more money by taking advantage of those who won’t budget.
- Microplace is money received back in interest and principal from what I consider donations through Microplace. I don’t touch this money, but when it refills I put it back into the system to help others. (May write a bit more about this later. Until then, take a look at Microplace and consider giving a helping hand to the needy. Helping them fish rather than giving them a fish.)
- PayPal Link is used to prevent having to give my checking account number to PayPal, as they are known for suddenly taking money away from people. The account sits empty except when doing business through PayPal.
With that all being explained, I’ll try to cover some of the gaps. Every week a spending allowance is transferred from checking to my Perkstreet checking account. This covers fuel, food, or whatever else I regularly spend on, and until today Perkstreet gave me 1% cash back on “credit transactions.” I signed up for an Amazon Rewards Card today that I’ll work into the system in the future. I still get 1% cash back, if by cash back you mean money to spend at Amazon, that is. I spent the Perkstreet rewards almost exclusively on Amazon anyway. (Books!)
I hope that covers the automation system. I would go through the interface, but CapitalOne 360 makes the interface pretty simple, so it probably wouldn’t be necessary.
One last thing, CapitalOne 360 also has a referral program, so if you are interested in the account after hearing how I use it, click the link and sign up and I’ll get a small credit for referring you.
If I left out a detail that you think should be included please comment and I’ll try to clarify.