How to Control Your Spending

I went to eat at the new Mongolian BBQ + Sushi place where the Happy Mexican used to be. On the car ride there, I was talking with one of my good friends. He complained about how he felt guilty eating out despite not having done it the previous several weeks. He said he had ~$600 in the bank and was always wanted a sizeable chunk in the bank as an emergency fund.

I didn't feel guilty at all. I gave him some advice and he got excited about the prospect of not feeling guilty about doing day-to-day activities. Here's what I told him:

Have a savings account and a checking account.

Savings Account: Have almost all your $$ in the savings account. Personally, I use an online bank because they offer the highest interest rates and -- this is both an advantage and a drawback -- it takes 3 business days after you request money for it to get transferred to your checking account. This means you can't spend all your money on an impulse purchase and regret it later, you have built-in consideration time.

To sidestep the 3-day delay, you can set up automatic transfers to your checking account. I have mine deposit amounts automatically each month. I have all the money I need for fixed costs (rent, utility, dues) and then an additional amount for everything else. The everything else is whatever you deem important. I like eating out, having fun with friends, and one-time unexpected charges ALWAYS come up so I have an additional amount alloted for that.

Checking Account: Have a $50 or $100 buffer in here. Touch this only if you NEED to, its safety against overdrafting. If you go below this mark you're in the red. If you write all your transactions down in some sort of tracker, don't include this in your total. If you spend more than your alloted amount consistently then you either need to increase your monthly stipend or figure out where you can cut your spending with the least detraction to enjoyment. If you have extra leftover at the end of the month, great! Deposit it back so you're down to your stipend.

And naturally, I suggest you have a credit card too. Not only will the extra credit help you out in a pinch (you go to the hospital or legal fees) but having this function as your spending medium instead of a checking account can net you a lot of bonuses.

By the way, there are some things about the Mongolian BBQ which confused me at first. You fill up your bowl with all non-meats, then go fill it up with meats. At the end you fill a little dish with the sauce you want and give it to the employee there. He/She'll give you a number and you go sit down. They'll bring it to you after its cooked. It's mouth-wateringly good.