Recently we discussed Cash Stuffing as the new revision of the Envelope System and the good things such an approach brings to people new to budgeting. One of the frequent criticisms of the envelope approach is that it lacks convenience in a world inundated with digital payments. It’s tough or impossible to purchase things online with cash without resorting to a lot of contortions involving prepaid cards or trips to the bank to deposit cash to use your debit card.

The challenge becomes how to leverage the segregation advantages of cash stuffing, minimize co-mingling of your budget categories, and retain the convenience of making digital payments. One solution is the One Number Budget that takes advantage of direct deposits, automatic payments, and multiple accounts. It really hits the sweet spot of making good behaviors easy and bad behaviors hard.

At your employer, you will want to set up direct deposit and automate your investing. Make your 401k contribution or set up a direct deposit with your brokerage to fund that Roth IRA. You will likely pay for your health insurance as a paycheck deduction and perhaps life insurance. If your employer offers a Health Savings Account, you could fund that as well. You will have completed several important tasks automatically before you even see your paycheck.

At your bank or credit union, you will need to set up several accounts. The first is a plain, old fashioned checking account. The second is a savings account that allows ACH transfers or a Bill Pay feature- we call ours (quite unimaginatively) the Bill Account. You will need an additional account, checking or savings doesn’t matter here, and label it Irregular Expenses. Finally, you will need a money market account for your emergency fund.

Armed with this array of accounts, you now must fund them. A good first step is to gather up all your routine monthly bills: your rent or mortgage, any car payments, credit card, utility, or insurance payments. Basically, anything you pay on a regular, recurring basis that doesn’t have much variability. You won’t include things like groceries or fuel even though they’re regular and necessary, they still have a lot of discretionary factors. Take all those bills, add them up on an annual basis, add 10% for the things you forgot, and divide them by the number of pay periods in a year. If you’re paid biweekly, that’ll be 26. That’s your direct deposit into your Bill Account. 

It’s simple to set up automatic payments for all those bills from your bill account. The money goes into and out of your account without any input from you at all. It’s on autopilot. Missed payments are a thing of the past. Since you’re funding your account automatically to cover your bills, getting caught short at the end of the month just doesn’t happen anymore. Nothing to remember. Nothing to do.

You’ll now need to figure out how to fund those odd expenses in your life that absolutely happen, just unpredictably. Take common auto expenses. You know you’ll eventually need a repair, maintenance, or wear items like tires, but they don’t happen on a regular interval. You may need to do some work here but try to figure out what that looks like annually and divide that by your pay interval as well. A good rule of thumb is 10% of your take home pay and set a cap on the account for one month of total expenses. 

Assuming you don’t have a fully funded emergency fund (3 to 6 months of expenses); you’ll want to set up an automatic deposit into your emergency fund to the level your budget can stand depending on your overall debt. I would shoot for having that fully funded in no more than 3 years. For example, if 6 months of expenses is $20,000; a deposit of $256 per check will build that up in 78 pay periods- or 3 years if you’re paid biweekly.

Now all those good things that people have a hard time doing- saving for your future, paying your routine bills, saving for irregular expenses, and building up your emergency fund– are now happening automatically without any input from you at all.

That brings us to the One Number, the remainder of your paycheck will be deposited in your checking account. That’s what you have left over for discretionary spending. Things like gas, groceries, eating out, and the like. That’s what you’ve got until the next paycheck- you can spend it all or let it build up slowly. You aren’t paying bills from this account so if it goes to zero, you’ll be cleaning out the cabinet for that ancient packet of ramen noodles, but nothing else bad happens. If the account is fat and happy, dinner out with friends and family is a guilt free pleasure. 

Since you are now just managing your discretionary spending without worrying about things like your rent, car payments, and the odd medical bill; the cognitive load is reduced to a manageable and direct level. Since you’re no longer comingling discretionary spending and fixed expense funds, you don’t have to be concerned about spending the mortgage payment on a birthday gift or a night on the town. 

Here are a few items to consider-

Once your emergency fund is fully funded, direct that deposit back to discretionary spending, investing, or another long-term goal.

Once your irregular spending account reaches a one-month cap, direct those funds to your emergency fund if it’s not fully funded, to investments, or to debt repayments. Most savings accounts are not going to pay very much, so piling up unneeded cash there isn’t the best use of your money. 

Your credit card payment will automatically bill the minimum payment. You should aggressively pay down your credit card out of your discretionary spending. If you have a lot of credit card debt that can’t be paid off in less than 3 months, set up an automatic payment above the minimum to pay it off faster and reduce the interest charges.

While this approach seems complex, it really isn’t. It takes time to set up and dial in, once that’s done it doesn’t take more than a few minutes per month to verify what should have automatically happened actually happened. It takes no more than a few hours per year to adjust the dials to meet new obligations or adjust the amounts to reflect your current budget.

You’ve put your financial life on autopilot and made the good things in your financial life happen easily. Maybe more importantly, you have prevented many of the bad things from happening at all.