This article describes two financial record keeping systems: a system for recording deposits toward the cost of future financial goals and a system to manage "extra" paychecks and expenses that occur occasionally (e.g., quarterly insurance premiums).
Many people have savings accounts but few have a system to record deposits for each of their financial goals. Establishing such a system is relatively simple, however. The first step is to make a list of goals with a deadline date and dollar cost for each. A Financial Goal Setting Worksheet can be found on the Rutgers Cooperative Extension Web site www.rce.rutgers.edu/money2000. Click on "Resources" and "Financial Goal-Setting Worksheet" to download the form.
Complete the worksheet to determine the approximate annual savings required to fund a future financial goal. For example, if you need $10,000 in three years toward a new car or house downpayment, you'll need to save $3,333 per year, which breaks down to $278 monthly, $128 bi-weekly, and $64 weekly. Calculate a savings amount for each goal that corresponds to the frequency of household income deposits.
Next, create a spreadsheet to track progress toward savings goals. This can be done manually with a pad of lined paper or by using a computer software program such as Microsoft Excel?. Create a column for each financial goal that you are saving for (e.g., new car). Each time a savings account deposit is made (e.g., $50 every two weeks), record it under the appropriate goal and update the account balance for that particular item. Total the balance after each transaction. Withdrawals are recorded in a similar fashion and subtracted from the outstanding account balance.
This system provides a visual method to see how savings is accumulating and to track progress toward achieving family savings goals. It also has a psychological benefit. Several research studies have found that seeing financial progress (e.g., increased savings and/or reduced debt) provides the motivation needed to continue taking positive financial actions.
The second record-keeping system to consider is called the "running balance method." A checking account balance is simply carried over from one month to the next after all deposits and withdrawals are made. This system is preferable to trying to fit irregular amounts of income and expenses into monthly boxes and pro-rate them.
Keeping records with the running balance method makes it easy to identify months with "extra paychecks" that can be used to increase savings or reduce debt. If you are paid bi-weekly, in two months of the year you will receive three paychecks because there are 26 bi-weekly pay periods in a year (12 x 2 +2 =26). Employees who are paid weekly receive an "extra" check in the four months of the year with five paydays because there are 52 weekly pay periods (12 x 4 + 4 = 52).
Months with extra paydays vary according to each month's calendar and the day of the week on which you are paid. For example, in January 2004, workers receiving a weekly paycheck on Thursday and Friday will receive five paychecks and those paid bi-weekly will receive three paychecks on the 1, 15, and 29 (Thursdays) or the 2, 16, and 30 (Fridays) if these are the dates are in their pay schedule.
"Extra" paychecks can be a godsend to pay off bills (e.g., holiday expenses) or to set aside funds for a future goal or large expense. The key to using them wisely is to anticipate months with "extra" paychecks in advance and earmark the money. After all, during all the other months of the year, you somehow manage with one less paycheck. Treat your "extra" paychecks as a valuable windfall and use them wisely.