In this chapter, we examine the timing between when you receive your income and when you spend it, and how easy it is to get into financial trouble when your money timing is off.

You will see how you can benefit from doing a couple of your day-to-day money tasks differently than you expect.

First, let’s take a look at the timing between when you receive your income and when you spend it.



When You Get Your Money

When you get paid is set by whoever is paying you.



When You Use Your Money

Cash purchases for everyday items like groceries, date nights, lattes, gas, lunches, or having your car serviced normally happen week to week.

Bill and credit card payments universally come due on some type of monthly schedule.

When you add money to your sinking funds and savings is up to you.

Your income can happen on a very different schedule from your outgo. As discussed, planning your spending and saving based on when paydays happen is how you live paycheck to paycheck. And living from paycheck to paycheck often leads to increasing debt and stress.

You avoid living paycheck to paycheck by making paydays unimportant in your planning.



Damming Your Income Stream

When you are living from paycheck to paycheck, your income stream is like an uncontrolled river. Your money flows in and then flows out at the same rate. Each payday, there is normally nothing left over from the previous payday. You are continually looking forward to the next payday when you get more money.

Since your paydays (which are only events) are the root cause of your living from paycheck to paycheck, the first step toward getting control of your income is to ignore your paydays. This is done by viewing your checking account as a cash reservoir.

The water entering a dam reservoir arrives on its own natural schedule. The water accumulated in the reservoir can be used on a schedule that is not dependent on the river flowing in as long as the water outflow is not more than the river inflow.

Your income stream can work the same way by viewing your checking account as your cash reservoir that is fed by your income stream. With a cash reservoir, each time you receive income, you deposit the full amount into your checking account and record the deposit.

That’s it. You do nothing else.



Using Your Cash Reservoir

When payday events are no longer important to you, you are no longer living paycheck to paycheck.

You are free to use the money in your cash reservoir in ways and on schedules that contribute to, instead of detracting from, your financial peace of mind.

Spending

With paydays no longer being important, you are free to decide when you will give yourself the money that you use for making day-to-day cash purchases. Since this type of spending is centered around your life week to week, giving yourself a weekly allowance makes a great deal of sense.

You decide the amount and on which weekday you will get your allowance. You do not plan how you will spend your allowance, nor do you keep track of how you spend it. The goal for your allowance is to end each week with little or no spending money left.

If you have no idea how much your weekly allowance should be, keep track of your day-to-day spending for a couple of weeks. Record every purchase whether you use cash or a credit card. Tracking your everyday spending will help you in two ways:

  1. You will get a reasonable idea both of how much you spend in a week as well as which weekday is most appropriate to give yourself your allowance.

  2. By recording how you spend your day-to-day money, you may see some habitual purchases that will surprise you. These habitual, and perhaps ill-advised expenditures may be spending that you want to stop.

A weekly allowance controls your spending. You will no longer feel like your money is on a payday-to-payday roller coaster. You have total flexibility on how you spend your cash with no requirement to plan nor keep track. Knowing you are never more than six days from your next allowance is comforting.

Each week on the weekday you choose, you get your allowance by removing the money from your checking account. The ways you can give yourself the full amount of your allowance could include:

  • Writing and cashing a check
  • Transferring your allowance to another checking account for which you have a debit card
  • Withdrawing your allowance from an ATM

How you give yourself your weekly allowance is up to you. The important part is that your weekly allowance is totally removed from your cash reservoir so that your spending money is not commingled with the cash still in your checking account.

Bill and Credit Card Payments

With payday no longer being when you pay bills, you are free to make your bill and credit card payments on a schedule that matches when those payments are due.

Paying bills once a month is too infrequent. Paying bills weekly is also inappropriate since weeks and months do not normally start on the same day. In addition, the number of weeks in each month is not consistent. The best compromise is paying your bills twice a month on the first and fifteenth.

  • On the first, you pay bills and credit card payments that are due on the first through the 14th.

  • On the 15th, you pay bills and credit card payments that are due on the 15th through the end of the month.

With a cash reservoir, the bill and credit card payments that you make on the first and 15th are paid with money that is already in your checking account. You will no longer be faced with having to wait for the next payday in order to pay a bill.

Credit Card Payment Days

The day each month when a credit card’s payments will be due is set by the credit card company when a new credit card is issued. It is to your advantage to change the payment day on all of your credit cards to one of the days on which you pay bills, the first or fifteenth, because of how credit card companies handle credit card refunds which will be either:

  • As a transaction - Regardless of when a return is made, the refund transaction is posted to the next statement the same as a purchase transaction. The amount of the new balance on the next statement is reduced by the return amount.

  • As a payment or transaction - On the day the return is made, if a statement has been issued but not yet paid, the return is used as a payment on the open statement to reduce the pending payment amount. If there is no statement open when the return is made, the refund is treated as a transaction on the next statement to reduce the new balance on the next statement.

Aligning your credit card payment due days with a bill paying day can greatly simplify deciding to which statement to apply a refund amount when you enter the transaction in Income Companion.

Sinking Funds and Savings

To simplify the planning for and the setting aside of money into your sinking funds and savings, schedule these set-asides on the first and/or 15th of each month. Saving your money then becomes an integral part of paying your bills.



The Benefits of Having a Cash Reservoir

Using your checking account as your cash reservoir, as well as keeping your sinking funds and short-term savings in your checking account, has benefits for you and your bank or credit union.

These benefits could include:

  • The balance in your checking account could consistently stay well above zero.

  • With carrying a sizable balance, overdrafts are avoided.

  • You could have excess cash in your checking account that you would prefer to move to other interest-bearing products.






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