Retirement Remedies: How We Use Sub Accounts to Stretch Our Money

Sarah asked me several questions about what I call Sub Accounts and I realized that this might be as unclear to others as it is to her.  So I thought perhaps a detailed explanation and an example might be in order.  Now the easy way to do this would be to take a photo of one of my actual ledger sheets but my husband would have a fit if he saw it on public display.  So for the sake of his sanity, I will show an example of how our checking register is set up.  The figures are totally fictional and used only as an example, just so you know.

We gave up using a check register about a year ago when we found that we now had to pay extra for them along with checks.  For about $3 I can buy a notebook full of ledger sheets (or print off the web) for about the same costs in ink which is less than we'd pay for the 2 registers!  Crazy, ain't it?  So we now use ledger sheets and because they are inexpensive, I use one for each pay period.  As a bonus the ledger sheets are so much easier to read than those tiny lines in the registers.

We have, as most folks do, certain things that come up routinely.  For us those would be electric, Internet, cell phone bills, insurances.  Each pay period we set aside HALF of the total amount due.  Then we set money aside in what I refer to as "sub-accounts".  These categories include car maintenance, home maintenance, tags and taxes, etc.   We take the average annual costs and divided them by 26 (we are paid every other week, 52 weeks in a year divided by 2 is 26).



So this is how our ledger sheet might look in any given pay period

Electric  ($50.00)                           $50.00                 $450.00
Internet ($35.00)                            $35.00                 $415.00
House Insurance   ($100.00)          $50.00                 $360.00
Home Maint. ($125.98)                 $25.00                 $335.00
Car Maint.  ($237.40)                    $25.00                 $310.00

What you are reading in the example above is what we are setting money aside for, how much we have in that category and how much we actually subtracted out of our checking balance.  In the last three examples you see that we've a balance greater than what we set aside.  That's because we are building those balances. We refer to those final three as sub accounts, an account within our main account.  We don't pay any extra fees, we don't set up separate savings accounts, we just allocate money into that category.    Money does not physically leave our account until we write a check for one of those categories.   While our account balance appears to be $310.00, in actuality it is higher.  But we base all our figures on the balance column figure.

When we spend money in a category you might see something like this:
Electric  ($50.00)                           $50.00                                      $450.00
Internet ($35.00)                            $35.00                                        415.00
House Insurance   ($100.00)          $50.00                                         365.00
Home Maint. ($125.98)(79.98)      $25.00                                         335.00
Car Maint.  ($237.40)                    $25.00                                         310.00
Aldi                                                $50.00                                         260.00
Lowe's                                           $46.00            Home$46.00         260.00

You'll notice that in this example, I've spent money at Aldi and money at Lowe's.  The money spent at Lowe's was for home maintenance and so in the deposit column I write down $46.00 and subtract that amount from my home maintenance fund, leaving a new balance in that category of $79.98.  Because I've physically given Lowe's money I write a debit to Lowe's, but that money has already been subtracted from our account  in previous weeks and set aside in the house maintenance account, so I add it back in as a deposit which zeroes out that purchase.

It's harder to explain clearly than it is to do.

John and I have been working our account in this way for nearly 20 years now.  It started during one of our children's high school senior year when senior photos,  graduation gown and cap, yearbook, etc. all came due in a year's time.  We coped with it by setting aside a bit of money each pay period and kept track of the balance.  Well that worked so well that as we freed up our money (paying off our debts) we started setting money aside routinely for other upcoming expenses, within the checking account.

If you think this would be a nightmare to balance it truly isn't.  When I balance my account it is as simple as adding the balances in our sub accounts to the balance showing in our register.  While I do not bother to balance to the penny, we are within easy range of having the correct amount per our bank statement reconciliation.

This system works really well for us.  We don't have the struggle of dealing with multiple accounts.  We don't have to transfer money from another account when we need these funds.  It means that we can maintain a higher balance in our checking account which allows us to keep our account free (we don't pay any activity fees.  Once upon a time we also got free checks with the account but that changed in the past couple of years).  It means that our savings account balance remains more stable because we don't touch it for routine needs or normal annual expenses and therefore it is truly our savings. Our bank charges a fee if we make multiple deposits or withdraw frequently from savings, so working with the sub accounts offsets those possible fees.

This has also taught me an important lesson.  Once upon a time I ran my checking balance right down to zero more often than not in a pay period.  Carrying a balance in our account took some getting used to and I mean that sincerely but it's become a habit and I admit it's a rather pleasant one.  

We are VERY  disciplined and do not consider these sub account balances as usable for anything except the intended purpose, so you won't find us eating out and borrowing money from those accounts to cover the cost.  In a dire emergency we might use the money, but honestly we've never yet had a dire emergency that warranted using those funds.

I hope this better explains how we use our checking account to work for us.