It’s eight days until payday, and your checking account is running on fumes.
Is there enough money in the checking account to cover any automatic withdrawals?
Who wrote check #1031 and how much is it for?
How much cash do we have around the house that we can deposit into our checking account right now?
These are actual statements that were said in our house last month, and it was a bit scary. I thought the days of sweating a zero balance in our checkbook were behind us, but I was wrong.
I was completely shocked when I sat down to look at our accounts and balance our checkbook. Our balance was $110.84.
Our balance should be no lower than $1,000 at any given time. We have a $1,000 emergency fund and we hadn’t dipped into it recently.
Of course, I discovered this in the evening right before our kids’ bedtime. Not the best time to be sitting down to focus on finances. I went to get our statements and outstanding bills, and I informed Brian what I was dealing with.
He knew right away I meant business because I was panicked.
We have had enough conversations about budgeting and money that I know the importance of how I present information to him. I used to say, “we have no money.” What I really meant was I was frustrated because we didn’t have money to pay more on our student loans that month. I learned to say what I meant because we were never actually out of money. We are frugal and don’t buy things we can’t afford. So when I came down and said, “we have $110 in our checking account, and I’m not sure if we’ll overdraft” he knew it was a big deal.
He did the bedtime routine and made sure the girls didn’t interrupt me. I spent 3 hours trying to figure out what had happened. Then how we could make it eight days without over drafting.
After three hours I figured it out and had a solution moving forward.
One reason we had an issue is due to medical bills. Some doctors require we pay the full amount of our bill (regardless of what insurance will cover) and then be reimbursed by the state once our insurance kicks in. This is thanks to the State of Illinois being over a year behind in their insurance payments. We have over $500 tied up just waiting until Illinois pays their bills so we can be reimbursed. Working for the state of Illinois, who likes to go years without passing a budget, is not advisable.
The other, larger, reason that we had run into this problem is that so many of our monthly bills are paid out at the beginning of the month. While our monthly budget is based on our income which comes in on the 15th and 30th of the month. We needed to front load our income to cover the expenses going out.
Whew, I knew the problem.
Next was figuring out how to solve it.
The simplest solution is to have our monthly budget based on our paychecks from the 30th of the previous month and the 15th of the current month.
For example, our October budget includes all of our expenses from October. However, the income we use to pay those expenses comes from miscellaneous income in October (i.e.varage sale income, ebates, and other rebates) and our September 30 paycheck and our October 15 paycheck.
On paper that is great, but we needed to come up with an extra half month’s salary to get this new process started. We did this by taking my extra income from teaching two adjunct classes, cutting our spending even more and by “borrowing” the money from our Christmas club fund.
Brian gets an education bonus every December based on his degree. Coincidentally, the bonus is the same amount as what we currently had in our Christmas club fund. This year we will use that as part of our Christmas fund along with the money we intended to save the rest of the year.
It was a relief to find out what had happened and to find a solution that we could do both now and in the future.
We were looking forward to finally paying extra on the student loan in September. However given how our month turned out I’m just thankful we didn’t have any overdrafts.
If you run into the same problem we did with front-month bills and end of the month income, consider a shift.
You may not be able to do it right away, but if you slowly put extra into your emergency fund, you can. You would need the amount of your end of the month income saved up in an emergency fund. This is over and above the $1,000 starter emergency fund. Once you have that you can start budgeting with the last paycheck of the previous month and the first paycheck of the new month.
While this was a stressful month, I’m excited about this new process. I think it is going to be much easier to allocate every dollar earlier in the month rather than speculating how much that last paycheck of the month will be.
By the way, if you were wondering check #1031 was only for $30.
So here’s the update for September
Income report from September
Money from Varage Sale $ 19
Money from Ebates $2.37
Storage Locker sales 26
Cash back from credit cards $ 34
Total extra income $81.37
Current outstanding student loan debt $32,239