I’ve written before that we follow a ‘dual account budgeting‘ approach when it comes to personal finance. This simply means running two current accounts in parallel.
One account is for all regular payments (e.g. our household standing orders and direct debits). The other is for all other “discretionary spending” for other items in the budget that will vary, so which require a higher degree of control.
Simplify your finances
By running two accounts, managing our monthly budget becomes much simpler. The first account is topped up on pay day, then it pretty much runs itself.
This leaves only the second account to manage whose spending categories are reduced to a small sub-set of headings, as follows:
- Mobile phones (I’m on a pay-and-go arrangement, not a contract)
- Lifestyle (costs associated with hobbies, pet care, hairdressing, clothing etc.)
So far, I’ve normally used a spreadsheet to manage our finances. However, as a regular listener to Dave Ramsey’s podcast, I was curious as to whether or not the EveryDollar app would work for us.
What’s different about EveryDollar?
EveryDollar is designed around a zero-based budget. That is, every month you decide (in advance) how you’re going to allocate money to each of your particular spending categories.
The name stems from Dave Ramsey’s approach to budgeting: if you give every dollar a name and tell your cash where to go, you’ll win with money.
In my case, I need an app called ‘EveryPound’ but that doesn’t quite have the same ring to it! So, EveryDollar it is!
Creating your budget
When creating your budget, the idea is that you input your income, then allocate your expenditure by category so that the latter totals the former. It’s a bit like a contemporary take on double-entry book keeping: both income and expenditure have to balance.
This allows you to:
- Pay down debt
- Allocate money for savings, including a sinking fund
- Plan for upcoming monthly spending
- Stick to your budget
I was already creating a zero-based budget with my own spreadsheet, but the EveryDollar app has a simple and visually-appealing user interface, so I decided to run both systems in parallel throughout March/April to see which one I preferred.
What’s a sinking fund?
One option you can select when setting your budget in the app is to establish a sinking fund. This is essentially a mini savings “pot” for things you know you’ll be paying for at some point in the year. It’s like a virtual piggy bank.
In our case, that’s £125 per month towards the annual service for our family car (plus anything else car-related)/, as well as a fund for Christmas. I trust that £1500 in total will be more than enough for both vehicle and Santa, but we’ll see!
By establishing a sinking fund, you don’t have to raid your emergency fund if, for example, you suddenly need a complete new set of tyres. You can also budget throughout the year for bills such as a your annual travel insurance policy or car insurance (cheaper than paying monthly).
With EveryDollar, I wasn’t sure if I needed to account for the £125 as a transaction (in which case, would this be “income” or an “expense”?). So, I experimented and found that the app just accounted for the £125 going into the ‘fund’; I didn’t have to record it as a transaction at all.
A slice of the cake
Another feature of EveryDollar is that it shows you what proportion of the whole a particular budget heading represents.
So, if you’re nerdy like me and you want to check what percentage of your total budget you’re devoting to a particular category, you can check. The app tells you what proportion of the ‘cake’ you’ve planned to spend, as well as how much you have remaining. That’s esimportant if you’re paying down debt and are intentionally on a tight budget.
By splitting my expenditure across two accounts, it makes it a little more tricky to work out what I’m spending as a proportion of the whole on each category.
I had a mini moment of panic when I saw the percentage apportioned to food and groceries, but when I did the maths (across the two accounts), I was relieved to see that what I’d allocated was less than 10% of the whole.
If you’re curious what Ramsey recommends, you can find a guide on the EveryDollar website.
Linking up your accounts
One thing I can’t do is link up the EveryDollar app’ to our bank account. To do this, you need to pay for EveryDollarPlus (and I don’t believe this would work across the Pond).
Instead, I track my spending by recording a transaction every time one hits my account. This way, I can keep a close eye on that particular category and check what I’ve got left.
A new month
As the new month rolled around, you’d expect me to have done the budget for April. However, I’m waiting until pay day (the third week of the month) to prepare my budget for April/May.
I know that some EveryDollar users are comfortable running their budget to align with the calendar month, but my ‘fiscal month’ is 24th to 23rd. This means my monthly headings are going to lag behind; until 24 April, we’ll still be in “March”. Maybe that’s a good thing. It still feels like winter!
Setting an intention
Of course, one of the aims of the app is modify users’ spending habits. Right now, the jury’s out. So, I’m going to carry on with my comparison of app versus spreadsheet. Let’s see, as the rest of April unfolds.
Do you have a favourite way of managing your budget? Perhaps you use an app like EveryDollar or have tried my dual account budgeting approach. Let me know by replying to the post, below!
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