Before figuring out a financial strategy, we had to figure out our goals. Our goals are:
- Live within our means
- Pay off debts before they cost us interest
- Save for a house, and for emergencies
Here's a high level summary of our specific strategy, based on those goals:
- Pay off debts first
- Keep money where it will earn as much interest as possible while remaining as accessible as needed
- Use a budget to maximize the amount of money we can save
And here is our specific implementation, as of May 15, 2008:
When we get a paycheck:
- Put tithing and offerings (10% of paycheck + offerings) into checking (we pay with a check)
- Pay off the balance on the credit card (also use funds from the Money Market account, if needed)
- If it is the start of the month, put $600 for rent into the checking account
- If there are any other bills, pay those
- Put $100 "we don't accept credit cards" money into checking account
- Put remaining money into the Money Market Account
- Pay with the credit card when possible
- Remember that there is only $100 spendable in the checking account
- For non-standard expenses (medical, tuition, etc.) which can't be paid with credit card, transfer needed funds from Money Market to checking.
When more than $500 accumulates in the Money Market account after paying all expenses, transfer that money to a higher yielding (but harder to access) account. We are currently putting our money into CDs, but we have been looking at high yield online accounts, such as ING's.
- We earn 1% back on Credit Card purchases
- We earn 1.144% on the money sitting in our money market account
- 1 & 2 together effectively create a 0% loan from the credit card which is paid off each pay period (bi-monthly).
- We keep enough money liquid to pay expenses for each two week period. This reproduces the paycheck-to-paycheck feeling we've lived with for so long
- Money we don't need immediately goes to higher earning accounts while being protected from our merciless spending
We will likely modify some of the details going forward, for example we are looking at options to maximize our 'extra' money. CDs aren't giving a very great interest rate right now. We will also consider getting a credit card with better rewards once we determine which one will be the best for us.