Proverbs 22:7

The rich rule over the poor, and the borrower is slave to the lender.

Sunday, March 14, 2010

The Month-Ahead Plan

I am sick of my cash flow problem. The money is budgetted appropriately each month, but the fact of the matter is that with only 1 steady income, the money is not there as quickly as we need it to get through the month. As a result of this, during the first half of the month, I am ashamed to say that we have "borrowed" from the emergency fund, to have cash for expenses such as food and gas, and then paid back that which we borrowed when the paycheck for the second half of the month comes in.

This is dangerous, and I'm sick of having to do it. What is going to happen if we do have a Major Murphy visit after rent has been paid, but before Paycheck #2 comes in for the month? DISASTER!

I've been reading on the MTMMO forums that many people operate under the "Month-Ahead Plan." Basically the idea is that you build up one month's worth of income and you have that money sitting in your account, and then, on the first of the month, you already have every bit of money you need to pay your entire expenses for the upcoming month. You could essentially pay your entire month bills on the first, and pull out the cash you need for the month on the first. By doing this method, it wont matter when your paychecks for the current month come in, because you'll be paying THIS month's bills with LAST month's income.

So for example, if my usual monthly income is $4000, then I need to build up a reserve of $4000 in my account before the first paycheck of the month even comes in. Then on the 1st of the month, I can pay all my bills for the upcoming month, and withdraw cash for my cash envelopes - gas, food, and blow money. For safety's sake, I would probably actually only pull out enough cash for each envelope to get me through 1 week at a time, so that I wouldnt accidentally spend my entire month's grocery budget in the first week, etc.

It's going to be very very hard to look at my checking account and see a large available balance of $4000 or so from month to month, and not throw it to my debt snowball, but I think that this is the best way to take control over the cash flow issue. I need to start paying THIS month's bills with last month's income, rather than struggling to make this month's income work for this month's bills.

The plan to put this into place is to back off the debt snowball for a month or two and resort to paying only the minimum balance due on my consolidation loan, and car loan. I have some money, approximately $2000, coming in from the Post 9/11 GIBill within the next several weeks, and Jonny is still bringing in some money from his job at the tax office. If I have calculated everything correctly, I should be able to be on the month ahead plan starting June 1st, which is only 11 weeks away.

There are many more plus sides to getting a month ahead. I can stop relying on each bi-weekly paycheck and I can set up more allotments through work, to where certain funds go into particular savings accounts already, rather than into my checking account and manually transferring the money when it's time to put it in. My $300 a month Sinking Funds could become a $150 per paycheck allotment that would automatically go into my sinking funds account. Instead of having to wait until the second half of the month to pay the church my monthly tithe, I could pay the entire tithe at the beginning of the month. I could even FINALLY set all my regular bills up on AUTOPAY, rather than insisting that I pay them on a specific day of each month, because I know it's a day that the money is available. <--I'm a little iffy on that one, I'm afraid I would become sloppy, and not double check the bills to make sure they are right and that I'm not being overcharged.

At any rate....I've been digging my heels in about this one, but as I tried to come up wth my cash flow plan for April and May, I was thoroughly depressed to learn that, once again, I would be forced to borrow from the emergency fund in order to have the basics covered: food and gas. Bummer. I guess it's time to put my big girl panties on and just DO IT.

1 comment:

Suzanne said...

I don't budget everything a full month ahead - just my mortgage. Since that is due on the 1st of the month, and I rarely get paid on the first, it's a necessity. It's also the largest bill.