How to budget using a checking account: 5 tips

Do you ever wonder where all your money went at the end of the month? If so, you’re not alone. Richmond Howard and his wife didn’t know why they never had any leftover cash to put into savings.

“About a year into our marriage, we realized that we had no idea where our money was going,” says Howard, an executive director who previously ran a personal finance website for new grads. “We both had great jobs, yet our savings were barely inching upwards.”

When the Howards decided to create a budget and use a checking account as a budgeting tool, their savings skyrocketed. In the year after they adopted their budget, they said they saved six times as much as the year before. Meal planning, cutting back on cable television and not spending on luxuries were key to their success.

“The not-so-secret advantage of budgeting is that it forces you to watch what you spend each month,” Howard says.

If the Howards’ story has you wondering how to budget using a checking account, the following tips are for you:

Cash can certainly help you stick to a budget. In fact, the envelope budgeting method suggests that you withdraw your monthly budget in cash and divide it into envelopes for each budget category. That way, once you’ve spent all the money in an envelope, you’ve hit your limit.

But Denis Trufin, founder of a website that discusses investing, personal finance and retirement planning, recommends an alternative method: tracking your cash flow with a checking account.

“When you use a checking account as a budgeting tool, you can track all your income and expenses in real time,” he says. When you log into online or mobile banking, you can easily see all your transactions in one place and monitor your spending history. “You’ll be able to recall how that money was spent versus using only cash and forgetting exact totals and where it went,” Trufin adds.

Budgeting isn’t just about how you spend your money. It’s also about optimizing your cash flow, or the total amount of money you have coming in and going out of your account.

If you want to become more confident in how to budget using a checking account, consider setting up direct deposits. Having your paychecks automatically deposited into your checking account means your money will be available quickly to cover bills and expenses. It can also help you feel more confident that you have enough cash on hand to avoid overdrafts. You can get paid sooner with the early paycheck feature from Capital One. Time-saving tip: Having your employer automatically deposit your paycheck into your account will mean that you don’t have to do it yourself.

“Our goal is to keep our finances as simple and as automated as possible,” Howard says.

You might also consider setting up automatic transfers to other types of accounts, like a savings account. This way, you can make sure money you’ve set aside for savings actually makes it to savings (rather than towards impulse purchases). Setting up automatic savings is a straightforward way to move money from your Capital One checking account into your savings without having to think about it.

If you’ve ever felt like you’re forgetting something on your to-do list, you know the sting that can come from a missed payment. You may also be all too familiar with how unexpected late fees or interest charges can bust your budget. If you use your checking account as a budgeting tool and set up automatic bill pay, you can cross bill payments off your chore list and let your bank handle them.

“I use automatic bill pay for all of my regular monthly expenses,” says Joel Parker, the founder of a blog that helps people increase their wealth. “This makes life so much easier.”

Trufin agrees. “Having automatic bill pay saves you time from having to mail out a check or even having to go onto the bill site to pay your account,” he says.

When you automate, pay attention to when your payments are scheduled to hit. One option is to schedule payments for when you have sufficient funds in your account, like right after you get paid. Just be mindful of when the bills are due.

Your bank’s app is critical for learning how to budget with a checking account.

“With most banks having apps, it’s easy to log in and check your account balance,” Parker says. “No more overdraft fees, no more accidentally overspending.”

If you’re learning how to budget using a checking account, keep in mind that the Capital One mobile app helps you make the most of your money by managing your finances all in one place.

Even if you track your cash flow with a checking account, an impulse buy or a financial emergency could throw your budget off course. If you try to spend more than the funds available in your account, you could even overdraft your account.

In these instances, extra money could come to the rescue.

“We like to keep a buffer in our checking account of $3,000,” Howard says. “We have a budget that we stick to that usually leaves us with a decent surplus each month. Anything over $3,000 at the end of each month we transfer into our saving buckets such as future down payment, extra debt payoff, vacation or more for retirement.”

If you keep these basic ideas in mind, you can better understand how to budget using a checking account and take control of your finances.

• Using a checking account as a budgeting tool shows you exactly where your money is going in real time.

• Setting up direct deposit and automatic transfers makes saving easier. The money moves before you can spend it.

• Automating your bills means fewer missed payments and no surprise late fees.

• Your bank’s app makes it easy to track spending, set alerts and manage your account from anywhere.

• Keeping a little extra money in your account can protect you when an unexpected expense comes up.

“When you stay on budget, you’re telling your money where to go instead of wondering where it went,” Trufin says. “A budget doesn’t set you back. It allows you to do more than you thought possible because you can see your overall financial picture.”

If you’re ready to start budgeting smartly, take about 5 minutes to open a 360 Checking account with Capital One and get back to what matters.