Paycheck Management

Have you ever felt a panicky feeling when an unexpected expense hit you that you weren't prepared to cover? Do you find yourself struggling to make ends meet at the end of the month? Does it seem like you always have to "go without" because you don't have enough money to enjoy that something special now and then?

I know what it is like to run on the financial treadmill and feel like you aren't getting anywhere. After many years of trial and error; working in the financial services industry; reading many books and articles; giving seminars; and talking with people who seemed to have a handle on their financial picture in life, I have finally found a solution that has eliminated much of the financial stress and worry too common to many people. The following simple paycheck management strategy can make it possible to enjoy financial peace of mind even though you may not be financially independent–one does not need to have an abundance of money in order to enjoy some of life’s pleasures and be free of the worry and frustration of being financially strapped. This strategy has served me well for many years. This is a powerful budgeting plan that can really work and help keep you financially organized and responsible.

Overview of The Plan

The old saying, "many hands make light work" still holds true today. The idea is to make your money work for you as well as your credit card and bank. Although a step-by-step detail will follow, the overall concept is that you will use your credit card to make as many purchases as possible so as to maximize the benefit rewards offered by the credit card. For example, I have successfully used MasterCard with a gasoline rebate; a VISA card with a 2% cash-back rewards program; another VISA card with merchandise rewards from LL Bean; and an American Express card with rewards of Delta Skymiles.

Each time you make a purchase you will deduct the amount of the purchase from a checkbook register, as if you had paid for the purchase with a check. When you receive the credit card statement you will simply write one check to the credit card company to cover all of the purchases, instead of writing numerous checks to several different vendors throughout the month. Since you have already deducted the amount of each purchase on a register, but have not actually paid for the purchases yet (the credit card has been carrying the purchases for the month) the money to cover the payment is still sitting in your checking account. This is a form of floating, and to take advantage of this opportunity you should establish an interest-bearing checking account, preferable one with no fee involved. Each month your actual checking account balance at the bank will show a large positive balance. The reason why is because you have not paid for the purchases yet, but have put them on the credit card. During this time your interest-bearing account will pay you interest on the money that is still sitting in there. 

Preparing to Make The Paycheck Management Strategy Work

The next few steps will help you create categories and prepare registers to best manage your money. You will first establish "categories." Categories are what you will divide your paycheck into (i.e. bills, groceries, entertainment, etc...). Each category has a separate register wholly dedicated for that category; when you get your paycheck, instead of putting the whole amount into one checkbook register, you will put designated parts of it into several different registers and run them as separate accounts. For example, you may decide to have a register for bills, another for groceries, and another for entertainment. As you are paid with each paycheck, simply put the allotted amount into each register.

Remember: Categories are definitions of what you decide to organize your paycheck into. Registers are where you record your purchases and deposit activity for each of the categories.

Over time, some registers may begin to show a substantial surplus. DO NOT fall for the mistake of thinking this is extra money–it is not; you just haven't used it yet. For example, let's say that you have a register for car/automotive expenses, and you haven’t purchased anything for your vehicle in a long time, by now the register is showing, perhaps, several hundred dollars. The next time you blow a tire, or need a new alternator you won’t have to even give it a second thought–it is already budgeted for and the money is sitting in the register designed for that purpose and ready to use. The groceries, the family vacation, the date night are never compromised. You have the problem covered. You have peace of mind.