In the manufacturing industry, the finance and project management teams utilize an earned value management methodology to track the workload by individual subcomponents called work breakdown structures (WBS) If you were manufacturing a chair composed of 4 legs, supports, and backing made of wood, and the seat made from metal and upholstery you might break down the project into two separate WBS’s to track the production and cost of the chair legs and associated components as one project and the seat as a separate project because the components are made of different materials, require different manufacturing methods, have different lead times, and costs. Apply this principle to manufacturing a car, boat or commercial aircraft and you can easily have a few hundred WBS’s set up to track the progress and costs associated with different integrated systems.
From a finance perspective, the team monitors the forecasted monthly cost for each WBS to identify if costs are running above or below the anticipated run rate. By tracking different WBS’s it’s possible to identify exactly which cost elements are out of line and put protocols in place to fix the problem without affecting the production and costs of other areas. Applying a similar strategy towards your own finances can help you create a budget, track your expenses, and identify overspending.
Let’s be honest, the more we save, the more tempting it becomes to splurge on items we do not need. One strategy I have found to trick myself into thinking I have significantly less money in the bank than I actually do is by spreading my money out over multiple accounts. I do not necessarily mean you need to have multiple banks and keep track and multiple statements, all you have to do is create multiple savings accounts within the same bank. Savings accounts are a good way to set money aside for emergencies or large purchases.
In fact, there’s no limit to the number of accounts you can open, and using multiple savings accounts—each one dedicated to a different purpose—is a great way to reach your savings goals.
Savings accounts are a good way to set money aside for cost of large purchases, different savings goals, expense budget tracking and emergency funds. There is no limit to the number of accounts you can open, and using multiple savings accounts is a great way to reach specific savings goals. I currently have 15 accounts through CapitalOne360 I have been using their service since 2002 when it was still called ING Direct. One of my absolute favorite features of their service is how easy it is to create new savings accounts and immediately transfer funds between accounts 24 hours a day. Once you are a member, you can literally create new accounts in less than 2 minutes. They also offer free checking accounts with no minimums and no overdraft fees!
Here is a list of what each account is dedicated to.
- Checking Accounts
- Monthly Mortgage + 16%
- Pet Expenses
- Travel Savings
- Emergency Medical Savings
- Vehicle Maintenace & Gasoline
- Utilities (Electricity, Gas, Internet, Water, Trash)
- Future Furniture Purchase (April 2017)
- Continuing Education (conferences, online classes, books, audiobooks, etc.)
- Entertainment (Movies, Netflix, Hulu, AmazonPrime,)
- Investment opportunities (LendingClub, Betterment, TDAmeritrade, RealtyShares, etc.)
Every two weeks when I receive my paycheck, funds are automatically disbursed into each of these accounts based on my average monthly expenses or monthly savings goal for each category. Money that is left over remains in my checking account and is used to pay any recent credit card purchases. By automatically spreading my money into different bank accounts I am able to dedicate those funds directly to my necessary living expenses and saving objectives before I spend any money. This strategy also keeps me my spending in check, because if I spend too much on frivolous expenses and there is not enough money left in my checking account to pay my credit card bill, I have to make a conscious decision as to what bank account I am going to have to rob to pay for my reckless overspending.
In addition, my various bills are linked to their respective accounts for automated bill payments each month except for my credit card bill which I choose to pay off in pull every week.
If you want to achieve financial independence, not stress about your bills, hit your savings goals and reduce your spending, I suggest taking the time to calculate your necessary cost of living needs and savings goals, then set up automated saving accounts and auto bill pay to make your life easier.
Readers, how do you manage your monthly spending and save for your financial goals? What strategies have you found to be successful or unsuccessful for your personality?