Money
Ditch Mint. Start Budgeting.
TL;DR
- Theoretical budgets aren’t as effective as physically splitting your money into separate checking and savings accounts.
- You can get started with four accounts: Core Checking, Mandatory Expenses Checking, Regular Savings, & Emergency Savings.
- Interlace your savings strategy with a spending strategy. Get the most back from every dollar spent by gradually building a system of a handful of high-powered credit cards.
I started out with Mint.com. It was a great relationship. We had our honeymoon period — I talked about how great it was to EV-RY-ONE. Then our in-the-rhythm period — every couple days on the bus I’d categorize my expenses and check my trends.
And then we hit some snags — expenses took 2 or 3 days to show up sometimes, whereas they’d be immediate in my bank or credit card apps. And then there were all the late nights I got lost in the sea of transactions and categories and trends. And then I had a few depressive periods after realizing I’d blown through my budget 11 months in a row… Or, after reading blog posts from YNAB, I’d try to makeshift Mint into a true budgeting app that could let me borrow from one budget category when I went over in another and that just got beyond messy. And then there was the realization that no matter how creative I was, Mint would never be able to help me PLAN my expenses for future months… I know I know — there’s the budget option for a one time purchase down the road, but what about income planning — tax returns, Christmas money, etc? And TBH, after trying it with those one time expense things, I got tired of 20 grayed out budget lines appearing every month in my budget — annual Amazon fee, annual credit card fees, the dentist copay every 6 months, the extra car payment I tried throwing in for December in one year’s budget… Messy. Very, very messy.
Seven Accounts
Then one day, after patiently listening to me complain about how bad I was at budgeting, a friend mentioned an article he read about something called Seven Accounts. No, it isn’t a new app. It’s a minimalist-esque way to actually save and budget money. Consider it the updated, applied version of Don’t Buy Stuff You Cannot Afford. (Thank you, SNL, for your contributions to the world.)
Here’s the short version:
1. Family Emergency Savings
2. Family Regular Savings
3. Family Checking
4. Wife’s Checking
5. Husband’s Checking
6. HSA
7. Slush fund
8+. OPTIONAL: Kids’ Savings & Checking accounts
See the summary video here. (Skip to 0:55 to save yourself that first unnecessary minute).
Some of this seemed a tad prescriptive to me, but the concept is awesome: Theoretical budgets don’t stop me from spending money nearly as much as physically splitting my money up does. When I get close to $0 in one, I focus a LOT more on what I do with my money than when I edge into red in a hypothetical Mint budget. (Classic examples of loss aversion and stated vs. revealed preferences at work.) Oh, and Wirecutter agrees, so this must be true:
Every single financial expert (who doesn’t have their name attached to an app) recommends creating and managing your own budget manually instead of using any app.
I took a few months and set up my separate accounts, got rid of the Mint app on my phone, monitored account totals, and started actually stashing money in savings for the first time in my life.
Buuuuut… I ran into a few snags here as well. First off, my kids are tiny — 3 and 1 — so setting up separate accounts for them didn’t make a ton of sense. I was already pushing into a Roth IRA for them every month (a MUCH more flexible alternative to a 529 college savings account). Thennn, my wife and I separated and we had to figure out something new. One family checking account just wasn’t going to work for us anymore. Plus, what about budgeting when you DON’T have a partner/significant other? Or when you do, but want to manage your side independently? Or when you want to reverse the Seven Accounts money flow and direct deposit into your own personal checking and then drop money into a shared household account? And then how does that whole system play out when you work credit cards in? Especially if you, like, me, have multiple credit cards? And how do you count money you’ve got in a stock market account? (Can I just say how much I love love LOVE Robinhood?) What about if you don’t have a high deductible health insurance option at your work and so can’t open an HSA?
Obviously, none of these broke the core principles that make Seven Accounts work. But, they did make me wonder if maybe Seven Accounts was slightly too specific. I need something a bit more flexible, but with the same principles at play.
Real Budgeting
Here’s the product of my own real-life budgeting trial and error. You’ll still need to tailor this to your specifics, but it’s a good place to start. In any event, using this method is highly correlated with better budgeting, more passive income, less money stress, and a better sex life. (HuffPo said it, not me. And don’t get me started on whether it may actually be your sex life affecting your financial life.)
1) Core Checking
Most important account. Set this checking account up first. Setup direct deposit to point here for your paychecks. As soon as money pops in, IMMEDIATELY move it where it needs to go next. Whatever’s left is your month’s discretionary budget. Link this account to all your credit cards. Most normal bank accounts work fine here, but if you can find a checking account that bears interest or gives you free money for opening a new checking/savings bundle, all the better. Just do yourself a favor and don’t settle for Wells Fargo. (Search Google News for “Wells Fargo”. No further explanation needed.)
Nerdwallet has great reviews of the best Checking Accounts and Banks. If you value brick-and-mortar options in a bank, you’ll want to filter your search based on banks in your local area. I highly recommend Capital One and Chase.
2) Mandatory Expenses Checking
Next, open a separate checking account — at the same bank as Core Checking, or different if you don’t mind a 3–5 business day delay whenever you transfer from Core Checking. (Sometimes spreading your bank footprint comes in handy for getting competitive loan rates or qualifying for credit card deals.)
Immediately pad this with $250. Then add up mortgage/rent, utilities, phone/internet bills, and any other regular, monthly bill payments. Divide this by the number of paychecks you get per month — by 2 if on the 15th/last day of month plan, or 2ish (technically 2.166) if yours comes every other week. Generally speaking, this should round out to about 50% of your paycheck. As soon as your paycheck hits Core Checking, IMMEDIATELY transfer that amount into this account.
You can also consider using this as a place to save money for that annual Amazon fee, the annual credit card fee, semi-annual or annual insurance payments, etc. Up to you whether to just move that amount in all at once and let it sit there, or piece it up over each paycheck, or just deal with it as it comes out of savings.
In the rare case your utilities companies allow you to pay by credit card without a fee, do that for the points and link this account to your credit card account as well.
If you’re co-budgeting with a partner/significant other, you can also make this a joint account and divide mandatory bills up between you to both contribute here from paychecks.
Don’t ever let this account balance drop below $200-250.
3) Regular Savings
Open this account next. At this point, you might even have this account open already if you opened a checking/savings bundle with your Core Checking. The goal with this account is to save enough to live for 3 months without income — add up your monthly mandatory expenses, add $100 for food, then multiply by 3.
As soon as your paycheck hits Core Checking, transfer 20% of it here until you hit your three month living goal. Make this a knee-jerk action; don’t let yourself think about it.
Up to you and your optional significant other whether you both contribute to one joint savings account, or each keep separate ones to avoid a Tragedy of the Commons.
If you ever have to use this money, transfer from here to either Core Checking or Mandatory Expenses Checking, depending on the type of expense, and pay from there.
4) EMERGENCY Savings
Open this account next. I recommend an online bank for this one: harder to get to, plus they often pay higher yields on your savings account balances and waive ATM fees. Perfect for leaving a lot of money in for a long time, but easy enough to get to in a real emergency. Synchrony and Ally rock for this and Barclays gets an honorable mention.
Your goal is to save enough for 6–12 months of living expenses or a few large emergencies. Once your Regular Savings has 3 months of living expenses in it, switch to have the same 20% of your paycheck go here instead. You can also consider splitting 10% here and 10% in Regular Savings to build both simultaneously, but watching one build twice as fast can be addictively motivating, especially if you’ve felt demoralized by budgeting in the past.
The idea is to seriously not touch this one unless life or death emergencies come up.
If you want to take a small portion of this money and sock it in the stock market, it can grow even faster than whatever APY you get off your Savings Account. I definitely recommend Robinhood — commission free and an awesome mobile app and fund choices.
If you ever have to use this money, transfer from here to either Core Checking or Mandatory Expenses Checking, depending on the type of expense, and pay from there.
5) Whatever’s Left
Anything left in your Core Checking after all is said and done is your discretionary spending. Generally speaking, this should — hopefully — end up being about 30% of your total paycheck. At the end of the month, after you’ve paid off your credit card balances, transfer everything left into Regular Savings if that one has dropped below your goal amount, or Emergency Savings if not.
Mint
It’s not that Mint is useless. It’s just not as useful as you thought it was. It’s still great for quickly seeing balances across all accounts —though I still prefer the security and up-to-dateness of checking balances in the actual credit card apps. And with the frequency of connection issues and length of update delays I have with Mint, it ends up being faster just to jump through each app individually. Wirecutter agrees with me on this, too:
From using Mint for years, talking to Mint users, and interviewing personal finance experts and reading related books, we believe Mint is very useful as a money tracker, but there are far better tools for actually budgeting.
Notice that I’ve said nothing about categorizing expenses and tracking dollars and cents over time. If this helps you, go for it. No amount of that ever actually helped me change my spending habits. For me, watching my balances and dividing my money into walled off accounts as soon as I get it does the job but without any of the transaction-level stress.
Now for credit cards.
The rule to remember: Get the highest percent possible back for every dollar you spend.
Start with a high level list of where your money goes. Usually, mortgage and rent companies and most utility companies either don’t allow credit cards or charge fees if you use them. This cuts out most of your fixed monthly costs, leaving you with your discretionary spending categories, which also happen to overlap with what most credit card companies reward:
• Travel (General)
• Travel (company specific)
• Dining
• Gas
• Groceries
• Uber/Lyft
• Certain store spending (Target, Old Navy, Sears, Macy’s, Amazon.com, American Eagle, etc)
• Home Improvement
• Convenience stores (CVS, Walgreens, RiteAid)
Obviously everyone’s got their own categories of where they sink their cash, but we’re a lot more alike than we are different. So, here are my suggestions for how to get the most cash back or points out of your regular spending. Again, adapt as needed.
DISCLAIMER 1: Obviously you might raise FICO eyebrows if you apply for all these cards at once. Ok whatever so pick a couple to start with, then add more gradually as you go. I’ve suggested an order and vague pace below.
DISCLAIMER 2: If you have no real credit history, start here. Come back in a few months. Credit is about time and being a good bet for credit cards. Pay off your balance EVERY MONTH. Or just get a card and don’t use it for a while.
1) Choose Your Sign-Up Bonus Adventure
Start here. I’m assuming you like to travel and, if not, then travel points for the following cards also convert to cash back or gift cards, though usually not at the highest rate.
I recommend the Chase Sapphire Preferred, but each of the following is great and just because you choose one to start doesn’t mean you can’t later add another when you’re ready. In fact, one could argue that your best bet is to apply for each of these in succession to get the highest concentration of rewards.
But, start with one of these:
A) Chase Sapphire Preferred
Almost every credit card review site ranks this as one of the best — if not THE best — credit card for its huge sign-up bonus and travel rewards. See here, here, here, here, here, here, and here. I rest my case.
Sign-up Bonus: Current offer is 60,000 bonus points after you spend $4,000 in the first 3 months. Points are worth 25% more when you redeem through the Chase Ultimate Rewards site, making that actually worth about $750.
Annual Fee: $95, not waived first year.
Foreign Transaction Fees: None.
Percent Earnings: 2X points on travel and dining & 1 point per dollar everywhere else. That, combined with the sign up bonus, makes the percent earning on the first $4,000 a whopping 20% — or 21% if you spend literally all of that $4K on travel or dining. Not. Bad.
Using Rewards: For the highest return, book through Chase’s Ultimate Rewards platform, which values points at 125% if you have the Chase Sapphire Preferred Card. Most airlines are available here. You can also transfer points 1:1 to one of Chase’s travel partners. In some cases, transferring points to another airline gets you a higher return than 125%.
B) Capital One Venture Rewards
About as many review sites give this card the number one spot. This card has a higher percent earnings run rate, but lower upfront sign-up bonus. See a side-by-side between this card and the Chase Sapphire Preferred here.
Sign-up Bonus: 50,000 miles after spending $3,000 in the first 3 months, worth about $500 in travel.
Annual Fee: $95, waived first year.
Foreign Transaction Fees: None
Percent Earnings: 2 miles per dollar on all spending.
Using Rewards: Book travel however you want, then use your miles to “erase” the charge later. This can be more flexible than Chase Ultimate Rewards, but also foregoes the chance to transfer points, or take advantage of the extra 25% bonus.
C) Barclays Arrival+ World Elite Mastercard
This card requires higher spending to earn the sign-up bonus, but gives a much higher sign-up bonus than the previous two cards and has a slightly better cash-back run rate. Compare this against the Chase Sapphire Preferred card here, or the Capital One Venture Rewards card here.
Sign-up Bonus: 70,000 bonus miles after spending $5,000 on purchases in the first 90 days.
Annual Fee: $89, waived first year
Foreign Transaction Fees: None, plus it comes with chip-and-PIN tech which is safer than chip-and-signature, and sometimes required overseas.
Percent Earnings: 2X points on all purchases, plus you get an extra 5% back from your miles each time your redeem, making total percent earnings 2.1%.
Using Rewards: This card imposes a minimum redemption amount of 10,000 points ($100), which can be a bummer and puts it behind many other cards. Outside of that, there are lots of ways to maximize your rewards.
2) Maximize Your Grocery Spending
After you’ve earned your sign-up bonus from step 1, apply for the American Express Blue Cash Preferred Card. No other card pays you more for grocery shopping — 6% back.
Sign-up Bonus: Earn a $200 statement credit after spending $1,000 in the first 3 months.
Annual Fee: $95, not waived first year. This is offset if you spend more than $31 per week at grocery stores.
Percent Earnings: 6% back on groceries!! Only catch is that it doesn’t count warehouse clubs (Sam’s Club, Costco, BJ’s), superstores (Walmart, Target, Amazon), or specialty stores (fish markets, wine shops, etc.). BUT, it does count all your regular grocery stores: Wegman’s, Trader Joe’s, Giant, Safeway, Smith’s, Albertson’s, Dan’s, Publix, Food Lion, Shopper’s, Harris Teeter, Whole Foods, Meijer, Shoprite, FreshDirect, Winn-Dixie, etc. AND, credit to NerdWallet for reminding us that most grocery stores have gift card stands that allow you to extend this 6% back to the above exclusions, plus any number of restaurants, hotels, iTunes, Amazon, and who knows what else. This card also gets you 3% back on gas which, depending on benefits in the rest of your cards, can sometimes be your best deal there too.
Using Rewards: $25 minimum redemption. If you ONLY do grocery shopping at Amazon — online or at Whole Foods — compare against the Amazon Prime Rewards Visa Signature Card. If you ONLY do your grocery shopping at Target, consider the Target REDcard.
3) If you love Amazon…
Take a detour here and sign up for the Amazon Prime Rewards Visa Signature Card. If you can comfortably take Amazon.com spending out of your expenses and still hit the $1,000 amount for the Amex sign-up bonus, then you can add this at the same time as the American Express Blue Cash Preferred Card.
Sign-up Bonus: $70 Amazon gift card instantly upon approval.
Annual Fee: None, but you must be an Amazon Prime member, which costs $119 a year.
Percent Earnings: 5% back at Amazon.com and Whole Foods, and 2% back at restaurants, gas stations, and drugstores. 1% back everywhere else. No spending cap on earnings. The Amex Blue Cash Preferred still gets you more from your Whole Foods shopping, but nothing rewards you more for spending money on Amazon.com. If you chose the Chase Sapphire Preferred Card in Step 1, then this card can also get you better returns at gas stations and drugstores.
Using Rewards: Use on Amazon.com.
4) Rotating Category Bonus Cards
At this point, start rounding things out by adding one or both of the following cards that give you 5% back in rotating and usually not overlapping categories. Just be sure to activate your rewards every quarter.
A) Discover It
Sign-up Bonus: Discover matches all your cash back earned in the first year.
Annual Fee: None.
Percent Earnings: 5% back on rotating categories, including gas, Uber, Lyft, home improvement stores, groceries, convenience stores (CVS, Walgreens, etc.). Unlimited 1% cash back in all other categories.
Using Rewards: No minimum redemption amount. Link to Amazon.com.
B) Chase Freedom
Sign-up Bonus: $150 back after spending $500 in first 3 months.
Annual Fee: None.
Percent Earnings: 5% back on rotating categories, including gas, Uber, Lyft, home improvement stores, groceries, convenience stores (CVS, Walgreens, etc.).Capped at $1,500 in combined purchases each quarter. Unlimited 1% cash back in all other categories.
Using Rewards: Use via Chase Ultimate Rewards portal. If you have a Chase Sapphire Preferred card, transfer your Freedom points to Sapphire to get the extra 25% bonus points in Ultimate Rewards travel.
5) Flat-Rate Card
Now, time to finish it off. For all your purchases not already earning >2% in rewards, you need a flat-rate card that earns you at least 2% cash back. Choose from one of the following:
A) Bank of America Preferred Rewards
Choose this only if you have a high combined balance between Bank of America bank accounts and Merrill Edge or Merrill Lynch investment accounts. You could earn as much as 3.5% back on each purchase. Since that excludes most of us, on to the other options.
B) Citi Double
Sign-up Bonus: None
Annual Fee: None.
Percent Earnings: 2% on all purchases — 1% when you buy and then another 1% when you pay it off.
Using Rewards: $25 minimum redemption limit.
C) Barclays Arrival+ World Elite Mastercard
See Step 1.
D) Capital One Venture Rewards
See Step 1.
E) Fidelity Visa
Sign-up Bonus: None
Annual Fee: None.
Percent Earnings: 2% cash back on all purchases, but rewards must be deposited in a Fidelity account (IRA, 529, or regular brokerage account — 401(k)’s aren’t eligible). If you redeem rewards as gift cards, statement credits, or charitable donations, they’re only worth 1%.
Using Rewards: Enjoy that “sense of conquest as your affluence expounds … All from tuppence, prudently, fruitfully, frugally invested in the … Fidelity fiduciary bank”. (Thank you, Mr. Dawes.) This might actually be the safest way to make your money count, and technically increases the total percent back too.
6) Optional: Travel Company-specific cards
Some airline or hotel credit cards have such good deals that no matter what your existing combo of credit cards is, you’re better off just adding one of these.
I travel the West Coast — and especially in and out of Portland — a lot, so I have the Alaska Airlines card almost for no other reason than the sign-up bonus miles and the annual companion pass. The companion pass alone pays for the annual $75 fee.
The Gold Delta SkyMiles credit card, United Explorer card, and Citi Aadvantage cards are good. NerdWallet compiles great reviews of the best airline and hotel cards.
Wrap-up
If you like Mint or are fine with your American Express Gold card or your lonely Wells Fargo Checking and Savings accounts — Wells Fargo? Still? Really? Do you not watch ANY news? Or have a conscience? — fine. Up to you. But you’re leaving free money — completely passive income — on the table. At least be a good neighbor and sign up for one of the above cards and give me your rewards :)
Otherwise, if you want to make a budget you actually stick to, try this out. Let me know how it goes.
