Lee Roesner calls himself a lazy perfectionist. "I find the fastest, easiest way to get something done perfectly," he says. He compares managing your finances to cleaning a messy room. "You get it all tidy and when you come back, it's a new mess." Same thing with cash flow. "What makes money management so hard is the variability. Money travels on multiple timelines that are incompatible. There's the weekly or biweekly cycle by which money, usually a paycheck comes in. Money goes out on a monthly cycle - mortgage, car payment and so on. The third option is totally random - in and out."
The Law of Averages
Analyzing a budget at work, Roesner discovered what's important is not each little charge or check, but the overall averages of income and expenses. "Averaging eliminates variability. The object is to put everything on the same timeline."
Roesner does this by dividing cash flow into fixed expenses that are the same every time, like a mortgage, and variable expenses, which could be anything that fluctuates, from the heating bill to credit card bills. His system assigns separate checking accounts to fixed and variable income/expenses, with people monitoring twice a month, on the first and the fifteenth. "You manage each category as a whole. Now you're managing two large expenses versus many small ones."
Once you've analyzed your spending patterns, you deposit the average amount into each account twice a month, adding a little cushion in case expenses rise higher in a given half-month period. "The bank accounts absorb the variability. One month it's a little higher, another it's a little lower, but it averages out."
Limiting the Crazy Factor
The other key is to write every expenditure into one of your two checkbooks, including each credit card charge. That way, you always know where you stand. "If you've put $500 in the account and spent $400, you know you only have $100 until the next reckoning day. Doing it this way sets a tempo for spending."
The advantage of this plan, Roesner says is that you have isolated what he calls the crazy factor in a single place, the variable account, which is only about a third of your income, so it's easier to manage. "Do this for three months and it becomes habit. When you do something over and over it becomes automatic."
Roesner sells a software tool, MoneySlinger, that gives you a spreadsheet to calculate your averages: average income, average fixed expenses, average flexible expenses and your goal for savings. Tracking sheets monitor the cash flow as you go forward. "It's always driving you to see the big picture, the forest rather than the trees," Roesner says.