How to use your checking account as a budget tool

Do you ever wonder at the end of the month where all your money went? If so, you’re not alone. Richmond Howard, and his wife McKinzie Howard, didn’t know why they never had any leftover cash to put into savings.

“About a year into our marriage, we realized that we had no idea where our money was going,” says Richmond Howard, an executive director in Houston who also previously ran a personal finance website for new grads. “We both had great jobs, yet our savings were barely inching upwards.”

When the Howards decided to create a budget and use a checking account as a budgeting tool, their savings skyrocketed. In the year after they adopted their budget, they said they were able to save six times what they had saved the year before. Meal planning, cutting back on cable and not splurging on luxuries were key to their success.

“The not so secret advantage of budgeting is that it forces you to watch what you spend each month,” Howard says.

If the Howards’ story has you wondering—“How do I budget with a checking account?”—the following tips are for you:

1. Use debit instead of cash

Cash can certainly be used to help you stick to a budget. In fact, the envelope budgeting method suggests that you withdraw your monthly budget in cash each month and divide it into envelopes representing your budget categories. That way, once you’ve spent all of the money in an envelope or category, you know that you’ve hit your budget cap and won’t risk overspending.

But Denis Trufin, founder of a website that discusses investing, personal finance and retirement planning—recommends an alternative method: tracking your cash flow with a checking account.

“When you use a checking account as a budgeting tool, you can track all your income and expenditures in real time,” Trufin says. When you log into online or mobile banking, you can easily see all of your transactions in one place and monitor your spending history.

“You’ll be able to recall how that money was spent versus using only cash and forgetting exact totals and where it went,” Trufin adds.

If you track your cash flow with a checking account, you can then adjust your budget and spending from week to week or month to month.

2. Use direct deposits and automatic transfers

Budgeting isn’t just about how you spend your money. It’s also about optimizing your cash flow, or the total amount of money you have coming in and going out of your account.

If you want to become an expert at how to budget with a checking account, consider direct deposits. If you have your paychecks automatically deposited into your checking account, for example, they’ll be quickly available to cover your bills and expenses, and you’ll also have confidence that cash is in your account to avoid overdrafting. Time-saving bonus: Having your employer automatically deposit your paycheck into your account will mean that you don’t have to do it yourself.

“Our goal is to keep our finances as simple and as automated as possible,” Howard says.

When figuring out how to use a checking account as a budgeting tool, also consider setting up automatic transfers to other types of accounts, like a savings account. This way, you can ensure money you’ve earmarked for savings actually makes it to savings (and doesn’t go from checking to an impulse splurge).

3. Use automated payments

If you’ve ever felt like you’re forgetting something on your to-do list—ugh, the utilities bill… that was it—you know the sting of regret that can come from a missed payment. You may also be all too familiar with how unexpected late fees or interest charges can bust your budget. If you use your checking account as a budgeting tool and leverage the automatic bill pay feature, you can cross paying the bills off your to-do list and let your bank do the remembering for you.

“I use automatic bill pay for all of my regular monthly expenses,” says Joel Parker, the founder of a blog that helps people increase their wealth. “This makes life so much easier.”

Trufin agrees. “Having automatic bill pay saves you time from having to mail out a check or even having to go onto the bill site to pay your account,” he says.

When you automate, pay attention to when you schedule your payments to hit. You can schedule payments according to when you have sufficient funds in your account, like right after you get paid, but be mindful of when the bills are due, too.

4. Use the budgeting features on your bank’s app

You use technology to keep up to date about what your best friend from grade school ate for dinner last night, so why not use it to track your finances? Your bank’s app is critical when it comes to learning how to budget with a checking account.

“With most banks having apps, it is easy to log in and check your account balance,” Parker says. “No more overdraft fees, no more accidentally overspending.”

If you’re learning how to budget with a checking account, know that your bank’s mobile app is also where you can pay bills, transfer money between accounts, deposit checks, track your spending and set account alerts (an alert for every transaction, for every transaction over a certain amount or for an account balance that dips below a predetermined threshold, for example).

5. Use a buffer in case you go over budget

Even if you track your cash flow with a checking account, an accidental splurge or a financial emergency could throw your budget off course. If you try to spend more than the funds available in your account, you could even overdraft your account.

In these instances, a financial surplus could come to the rescue and help you use a checking account as a budgeting tool.

“We like to keep a buffer in our checking account of $3,000,” Howard says. “We have a budget that we stick to that usually leaves us with a decent surplus each month. Anything over $3,000 at the end of each month we transfer into our saving buckets such as future down payment, extra debt payoff, vacation or more for retirement.”

Use a checking account as a budgeting tool

If you follow these tips, you can become an expert on how to budget with a checking account—and that’s something that can transform your financial life and help you achieve your financial goals.

“When you stay on budget, you are telling your money where to go instead of wondering where it went,” Trufin says. Budgeting makes more things possible, from breaking out of the paycheck-to-paycheck cycle to eventually building wealth.

“A budget doesn’t set you back,” he continues, “it allows you to do more than you thought possible because you can see your overall financial picture.”

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