How do you know how much money you have to spend for some particular item? Are you like most people, and look at your bank account? You shouldn’t look there. Your budget and bank account are two separate things.
The problem with using the money in your bank account is that every dollar in there should have a job. By have a job, I mean it should already be allocated toward something you’ve put in your budget. So, if you look at your bank account to find out if you have enough money to make a purchase, you’re hurting yourself on multiple levels.
You can’t possibly remember the exact dollar amounts for every expense you have coming up in the future. Remember your car insurance you pay every 6 months? What about Christmas gifts? Extra medical bills coming up soon? What about saving for a newer vehicle down the road?
Having multiple savings accounts for larger expenses can help out, but it doesn’t account for everything (remember the 6 month car insurance?). Creating a budget gives you the roadmap on how you plan to spend your money, and everything in your checking/savings accounts should be accounted for in your budget.
Once you have a budget, you can simplify your accounts for what they really are. A checking account is just a vehicle for you to write checks (online and physical), and a placeholder for money going in and out of the account on a regular basis. A savings account is set up for more intermediate savings, since it has a higher interest rate. In an ideal situation, you would have one checking account and one savings account, and transfer money between the two based on the amount you want to keep in your checking. You should never look in your checking account to see if you have money to spend.
We have Schwab for our checking account, and a high interest checking account with a local credit union as our savings account (just because the interest is higher). We use roughly the minimum amount of transactions on our credit union account, so we can get the higher interest rate, then put everything else on our credit card. This is not a problem for us, because we treat the credit card just like any other account. We track everything, and make sure we have the money before it even goes on the credit card. Then when the monthly bill comes due for our credit card, we just pay it off in full with the money in our Schwab checking account. We just treat it like a transfer between the two accounts.
Our budget, on the other hand, has 62 different categories (yup, I just counted). I like to focus on detailed categories (probably a little overboard for most people, but it works for us). You might have much fewer categories in your budget. Whatever works for you. The point is that you keep a budget, so you can tailor it to your spending needs.
So when we need to find out if we have money to spend on eating out, for example, we just look at the Restaurants budget category. If there’s money in there, we have it. If we already spent it for the month, we don’t have anything to spend. The rest is already allocated toward something else. If we really want to eat out, we make a determination of what other category we can take the money from (ok, bad example, because eating out is probably one of the lowest priorities in our budget, but you get the picture). The point is that it doesn’t matter how much is in our bank account.
If you still look at your bank account to make decisions on purchases, and you don’t have a budget, create one now. I don’t care what you use for your budget, but you definitely need to have one. Use YNAB, a spreadsheet, a pencil and paper, or envelopes. Try one method, and change it if it doesn’t work. Just try something. Looking at any budget is way better than looking at your bank account to see if you have money to spend.