It’s fun to guess how many jelly beans are in the jar or if the new baby is a boy or a girl, but playing guessing games with your budget is no fun at all. Of course there are always going to be some unknown details on the expense side of a budget, but what if you took the guesswork out of the income side? What if you knew exactly how much money you had available to budget at the beginning of the month?
Of all the changes we’ve made to our budget over the years, the real game-changer for us was when we decided to get a month ahead of our expenses. Instead of living on next month’s income (by relying on credit cards) or living on this month’s income (living paycheck-to-paycheck), we are living on last month’s income (being a month ahead)!
When we came across the idea, it seemed so obvious that we were amazed we had never thought of it ourselves. In the years since then, we’ve not only seen amazing budgeting success, we’ve actually come to love working our budget. Living on last month’s income is both intuitive and ingenious.
How it works
Each month we save all of the money that we earn. We don’t spend paychecks or any other cash we get during the month when we receive them. Imagine a jar labeled “for next month” where we actually stash all those paychecks. When the next month starts, we figuratively dump out the jar, count it, and create the month’s budget using all of that money that we earned last month. We know from the first day of each month exactly how much we have to work with. We are budgeting actual, real money in the bank, not money that we are hoping to earn that month.
Good tracking is essential so you know which money is for use this month and which is for next month. There are a couple of ways that you can keep track of which money is for this month and which money is for next month. You could have two separate accounts: one for the money you are using this month (a checking account) and one where you stash all of your earnings to be used the following month (a savings account). You would transfer your month’s worth of income from the savings account to the checking account at the end of the month.
For us, the easiest way is to just have one account and keep track of how much money we have available to spend that month. You can find a detailed explanation of how we manage our budget here, but the steps are simple. We budget the total amount of money earned last month into the new month’s budget categories, diligently track every expense, deducting it from the category balance as we incur the expense, and always look at the category balance rather than the checking account balance when making spending decisions. With this system, we can budget every penny of last month’s income without being tempted to touch the income that’s waiting patiently to be used next month.
A simple change right? The results are amazing!
Why We Love It
I had no idea how much stress budgeting caused me before making this change. Knowing that we are budgeting and spending money that we already have brings a sense of financial peace. The money for all the month’s bills is there sitting in our checking account. No more guessing or trying to figure out how to time paychecks with bills. No more stress about making sure we have enough in the budget to cover the credit card statement when it comes due. With this system, we actually pay all the bills and the credit cards at the beginning of the month, because the money is already there.
When my husband’s pay changed to strict commission, we didn’t have to worry about how we were going to handle a fluctuating income. If a lean month is coming, we have a month to prepare for it. If my husband were to get injured or lose his job, our bills and expenses would be covered for a month without even having to dip into our emergency fund.
Right now our big goal is paying off my our law school student loans as quickly as possible. Before we started living on last month’s income we never knew exactly how much extra we could put toward debt. Now we can maximize our debt payment each month.
Do you want to get a month ahead so that you’re living on last month’s income? The key is to save up a month’s worth of expenses to get started. If you don’t have a month’s worth of expenses just sitting in your account now (wouldn’t that be nice?), make that your next savings goal! Is there something you can cut out of your budget for a limited time to help expedite your savings? See what you can save by lowering your monthly bills. Will you be getting a windfall (tax return, gift, bonus, etc) that you could put toward your get-a-month-ahead goal? Do you have things around the house that you could sell to contribute to your fund?
Even though we have a huge debt goal in front of us, we made getting a month ahead a priority. We used our tax return to jump start our fund. For several months, our debt payments were low because we were saving our extra to build our one-month buffer, but it was well worth the effort. We have never looked back! I attribute much of our budgeting and debt payoff success to getting a month ahead. We feel so much peace and security even amidst our fight with debt.
Maybe you’ll win the jelly bean jackpot by playing a guessing game, but in budgeting you’ll win a lot more by choosing not to play the guessing game, at least when it comes to income. You really can get a month ahead and you’ll be so glad you did!
Stephanie and her husband and their four little ones are on a super frugal journey to pay off over $130K of student debt by the end of 2016. She makes her family’s personal finances public and shares money-saving and budgeting tips at SixFiguresUnder.com. When you subscribe to her newsletter, you’ll get a free copy of her Guide to Getting a Month Ahead Financially.
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