I am growing more and more convinced that the reason a lot of people struggle with budgeting is because we live in a world that is too focused on accounts. Most people have more than one account, typically checking and savings at the very least. Some folks have two checking accounts – one for bills and one for everything else. On average most people have between three and six Savings Accounts based on what I see through webinars and coaching. They have one savings account for property taxes, one for emergencies and so on.
Then there are credit cards. Most folks have a few of those as well. Many people have a credit card they use for purchases and pay in full each month and some folks have cards they have stopped using entirely and are just trying to pay off.
It’s not unusual for me to look at a YNAB file and see ten accounts. In an effort to understand the people I am working with, I always ask the purpose of each account. When it gets right down to it, many times people are using accounts to budget. “The money in this account is for XYZ.”
Why are we so hyper focused on accounts? Because if you do not have a budget – you do need some structure to manage your money, and accounts are the structure that society provides. (See? You are secretly craving a budget!!) Everyone has a few accounts, and we are in constant contact with them. Money goes in and out all the time. If you are using an account for a specific purpose – more than likely – you are trying to budget through accounts.
It can be really hard to let go of that structure, but the budget can simplify things for you if you let it.
Let’s say you have two checking accounts as mentioned above – one for bills and one for everything else. If you create categories for the bills – and everything else – you could easily have one checking account. Track WHAT the money is for in the budget.
In fact to take this a step further, when you finally go to spend money, checking the account balance is no longer even necessary. Check your budget instead! Let’s say you have budgeted $300 for groceries and your total account balances are $1000. It doesn’t really matter what account you use for the purchase. You can hand over cash, a credit card, a check, a debit card – the budget doesn’t care HOW you pay for this. The budget needs to know that it was for groceries. The point is that $300 is what you have set aside for groceries. Your other dollars ($700 of them) are busy doing other jobs! So you cannot spend all $1000; your allowed amount for groceries is $300 and it’s the budget, not the bank balance, that tells you so.
Do you have multiple savings accounts? Condense that down to one! Set up savings categories on the budget to track your savings goals. Instead of having a savings account for emergencies, and a seperate one for vacation, and yet another one for property taxes, set up a master category for savings, and sub-categories for each of those things. This is what the budget is for!
Honestly, if I could find a checking account that paid a great interest rate, I’d have one account and let my budget take care of everything else. Because ultimately, accounts are just storage containers for our money. (Dollars by location) The budget is where we keep track of WHAT our money is doing. (Dollars by job) When it comes right down to it, the budget doesn’t care WHERE your money is. You can keep it all in pennies in a sock drawer if you want – as long as you tell the budget what you spent those pennies on.
Can you imagine how simple things would be with one account? Think about it. No transfers, no wondering how to move things around. Look over your existing accounts and ask yourself “Am I using this account to budget my money? Could I take care of this by creating a category instead?”
Simplify your life. Trust your budget. Close some accounts!