Updated February 2011
A couple of weeks ago I had some readers email me about how I set up my banking. This old post addressed the setup I had back in 2007, so I thought I better update it with what I’m doing today (fyi..it’s changed several times since this post was originally published). I share this information for a few reasons:
- so my wife and I can clearly understand our system
- so that you can help me to improve my system
- so that you can learn from it if you aren’t already doing something similar
Just as a point of reference, I’m now self-employed and my wife is working way harder than me at home with our little one, and soon to be #2.
Business Credit Card – I use my Chase INK rewards card for at least 75% of the spending I do for my business. I use this card to pay for my website hosting, domain renewals, newsletter management, various marketing expenses, home office equipment, and the occasional business lunch.
I also have this card attached to my PayPal account as the backup. If I’m ever short of funds at PayPal, it get’s pulled from here. I pay this card off each month, automatically and in full, using my business checking account.
I love this card because it gives me added protection for my business expenses and it provides cash back rewards. See my full Chase INK review to see how rewards are earned.
Business Checking Account – I use Chase business checking as my primary hub for all of my business activity. I pay off my business credit card with this checking account. All my business income is either direct deposited into this account, or I deposit the physical check (I occasionally use their photo check deposit feature…very cool).
I use this account for any business expenses that I can’t pay with my credit card: taxes, invoices from contractors, etc. Once or twice a month, I move some money from this account over into my personal checking account.
For the personal side of my banking setup, I thought it would help if I shared a new diagram. If you haven’t taken the time to map out your financial system, I would highly suggest it. It helps you to understand where your money is going and how you could make improvements.
Personal Credit Card – Sometime last year we made the switch to using the Chase Freedom credit card as our primary personal spending account. We use this card for all of our discretionary spending (groceries, gas, dining out, travel, entertainment, household goods, convenience items, etc).
We also have several bills paid automatically using this account: internet service, cell phone service, gym membership, and toll road charges. We also have our auto insurance paid automatically using this account, but it only hits every six months.
We would have more bills set up on autopilot, but this is everyone that would let us pay with credit card. As you can imagine, with all of this spending going through the card, the cash back rewards rack up pretty quickly. We’ve already cashed out over $200 in rewards.
Like my business credit card, this card is paid automatically and in full each month. Except this one is paid off from our personal checking account.
Personal Checking Account – We use Capital One 360 Checking as our primary hub for all of our personal checking. This account is funded by my business checking account using electronic transfers on an as needed basis. From this account, we pay the following bills automatically using billpay: mortgage, home owners association dues, life insurance, and car payment.
We also are forced to use our debit card for this account when we shop at Sams Club or ALDI grocery stores. We also pay the following bills using the manual billpay or check writing features: water and city services, electric, gas, health insurance, as well as annual charitable donations and property tax payments.
Finally, we automatically withdraw funds from this account for the following savings accounts: Roth IRAs for each of us, and 529 Plans for each of our children.
Personal Savings Account – We use Capital One 360 Savings account for our emergency fund. We earn a bit of interest on this money and it remains separate from our checking which is key. Ideally we should have some sort of automatic transfer going into this account, as we discovered last Fall that we don’t quite have enough short-term savings.
Additional Banking Accounts – In addition to these main accounts, we have a business savings account and a personal checking account at Chase that we really don’t use. They are nice to have as backups though.
Personal Retirement Accounts – As I mentioned above, we are automatically funding Roth IRAs each month. These accounts are held at Vanguard. I also have a rollover IRA there as a result of closing my 401K at my old job. Mrs. PT is taking steps to move her old 403B to a rollover IRA as well.
Taxable Investing Account – We don’t do much of this, but we have a small amount of money with Sharebuilder in a taxable investing account.
College Savings Accounts – We opened these 529 college savings plan accounts a couple of years ago and have funded them on and off with various funds.
Recently I set up a small automatic contribution to each as the plan I’m with will provide bonus money and sweepstakes funds for people automatically contributing.
What’s Missing? – Going from corporate job income to being self-employed has thrown kinks in our banking setup. Much of the work of saving and insurance will be on our shoulders now. As you can see, we need to set up some type of auto contribution to our personal savings account.
We also need to look into ways to automate more of our bill and/or move them to credit card payment to earn more rewards. Finally, I need to start contributing to a self-employment retirement plan, either a SEP IRA or a Solo 401K.
What other improvements could I make to my setup?
Below this line is the original post I shared back in December 2007. Things have changed quite a bit. But you’ll notice one constant.
Just recently I set up a new checking account at Capital One 360 and restructured my entire bank account system.
The Old Setup
Checking Account with Bank of America – Both paychecks were direct deposited into this account. All automated bill withdrawals were made from this account. BOA bill pay was used to pay bills not on automated withdrawal. Checks were written from this account for all bills not automatically withdrawn or paid with bill pay. This account was also used to pay any day-to-day expenses (meals, entertainment, etc…).
Savings Account with Bank of America – The minimum amount was maintained in this account ($300) so no fees would be incurred. This account was occasionally used for short term savings goals. However, no more that a few hundred was ever kept here. Why? Because the interest earned was less than 0.50%. Not good.
360 Savings Account with Capital One 360 – Since the summer of 2006 we used this account to hold our emergency fund and house down payment savings (two different sub-accounts were used). We didn’t use the automated savings plan available but we ended up putting a significant sum in this account every month. Interest earned during this time period was around $800.
The New Setup
Checking Account with Bank of America – Under the new system, I’m using this account strictly to pay bills. I’ve got one pay check being direct deposited into this account, and I’m paying all bills from this account either using automated withdrawal or BOA’s excellent and FREE bill pay.
The paycheck that’s deposited into this account just happens to cover my monthly bills with enough cushion to protect me against any unexpected upswings in the variable bills (i.e. energy bill).
Savings Account with Bank of America – The use of this account has not changed. It’s still holding the $300 (avoiding the fees) and earning less than 0.50% interest.
360 Checking Account with Capital One 360 – This is the new account I set up in order to make the most of my banking. This account will now be receiving funds from 50% of one of the pay checks. It also comes with a debit/credit card. Therefore, it will be used to cover any day-to-day expenses (meals, entertainment, etc…).
This account will earn around 3.25% interest and be directly connected to the Capital One 360 Savings account, which is handy for quickly accessing our savings, via a transfer and subsequent credit/debit card use at an ATM.
360 Savings Account with Capital One 360 – This is where the other 50% of one of the paychecks is going. Again, I’m earning the most interest on this money, so the goal is to have more in here.
Chase Bank Limited Time Specials Offers for New Customers – Offers expire 1/15/16
Chase Premier Checking Account Special Offer – New Chase Premier Checking customers receive $300 to get started when you open a Chase Premier Checking account and set up direct deposit.
Chase Total Checking Account Special Offer – New Chase Total Checking customers receive $150 when you open a Chase Total Checking account and set up direct deposit.
Chase Savings Account Special Offer – New Chase savings customers receive $100 when you open a Chase Savings account, deposit a total of $10,000 or more in new money within 10 business days, and maintain a $10,000 balance for 90 days.
Other benefits include making deposits on the go with your mobile phone and the ability to pay people without writing checks or with cash.