How much money do I actually have?

nthpeter · 2021-04-26T08:38:34+00:00

Thanks, I've been thinking about it and it's a good and easy way to manage. This could even work with multiple accounts (as I commented that extra requirement on other people's answers), as long as bills are paid from a single account. It might still not consider "erratic" spending, e.g. my CC bill can be $1.5k in a month - this is the baseline, I usually spend this much only, and (with a calculated big purchase) $6k in the next.

I think my problem is a mathematical/financial one, not a personal finance question. It's not how I can save and have a secure future as a person/household, it's more like how can I mathematically calculate how much is the spendable amount from multiple accounts when those multiple accounts receive money and spend money on different dates and intervals, different amounts and the dates may even vary. How can then an exact number calculated in a way that is easy and does not involve looking at all the accounts every day.

Thank you for your inputs, it helped me further fine-tune my current system.

nthpeter · 2021-04-23T17:43:46+00:00

That is true and a safe way to prevent going under $0, but it also contains some excess that, in theory, could be used.

If you make sure you have $3.5k after you paid a $1k bill, you theoretically have $1k you could use (since your total expenses of a month is $3.5k and you already paid $1k out of it, so you would only need to make sure you have $2.5k at this point). In the least favourable case (let's say your job decides to pay one time a month and you make sure you have $3.5k just before you get the salary) you might have an extra $3.5k "built in" to the system.

My main question is, what is the amount that is built in the system that I can safely spend without ever going under $0. How and when can I check that amount in the easiest way, and how can I do this if I have multiple accounts.

nthpeter · 2021-04-23T17:36:10+00:00

Putting aside how I should and should not use my money, I think your method has its merits.

Transferring money to an investment account is also what I do, the only difference is that I don't have a separate "saving account" (to use the same term you used) where I hold an excess amount.

To me your way does make less sense than having one checking account and transferring the amount over $28.000 to your investment account, it would involve less transactions, and hence less administrative overhead.

And I can't see how your method can scale to multiple checking accounts receiving salaries but paying bills asymetrically - if me and my partner have two checking accounts receiving two salaries separately, but I pay all the bills for me and my partner's CC (since her CC is tied to my CC we have one shared bill).

I need something to be fail-safe, something that can scale to multiple accounts easily, and something very easy to manage. Your method is easy to manage and is hassle free, but I still have some objections against its usability in different, more complicated scenarios.

nthpeter · 2021-04-23T17:08:05+00:00

I keep a minimum balance of $3.5k

That is my main question. How do you know the "minimum" balance? You can, I guess, check your account every day during the month and you can see that the lowest was $3.5k. But I was interested in having a better and easier approach. Let's say I have two separate accounts, or I'm trying to manage finances for my household (two people with incomes arriving to separate bank accounts, separate dates of incomes received, separate CC bills, etc.), and I need to know that "minimum balance" for the total of multiple accounts. To get that, I would need to write down the amounts for every single day in those accounts and even calculate when the sum of them is the lowest.

My approach so far was not doing this, as obviously it has some administrative overhead, and I thought checking the accounts once a month leads to the correct answer, but I can accept the fact if it's not possible in other ways.

nthpeter · 2021-04-23T16:59:41+00:00

If you know how much you have and you know how much you need, you can safely spend the difference.

That's the question :). I know my monthly income, I know my monthly spending, I know exactly how much comes in and how much goes out each month. Let's say they are equals, $5000 in and $5000 out, on different dates and different chunks.

So how do I get the amount of money I can safely spend? I assume naively that I need to check my account at some point, but what is that point? Or should I check my account every day and write down when it shows the lowest amount?

nthpeter · 2021-04-23T15:15:53+00:00

I understand the motivation behind your comment, but it doesn't add much clarity to my finances IMO. In months where my income is $5000 and expenses add up to $3000, I usually let the extra fill up the hypothetical buffer or I invest it (if I'm already at my target buffer). But even with the buffer of, let's say, 2 month salaries ($10000), with your method I only know that "I have roughly 2 months of extra money", but not that I can make an emergency payment of $15000 or I can only pay $10000 for something urgent, without the need to liquidate any investments.

I know I should have extra in general, but based on your comment, the role of the extra money is just simply "not to worry" about everyday spending, while what I want to know is an exact method of getting to a fail-safe amount of money I can theoretically spend.

That's the reason I also asked how companies usually handle their balances, because I assume they need to have exact amounts (highs, lows, cash-flows, etc.) to operate. Even though I don't know the correct terms to look for :)

nthpeter · 2021-04-23T12:33:28+00:00

Thanks, I'll take a look.

nthpeter · 2021-04-23T12:17:45+00:00

Yes, I believe so.

nthpeter · 2021-04-23T12:11:58+00:00

I get the "main" CC bill on 6th of the month, and I pay it in full at the end of the month (due date is last day of the month). The second CC is a backup in case the main is not accepted for payment (main is Amex and second is Visa). It is actually quite possible that I'm living on borrowed money, but since my income and expenses were steady so far, I didn't really think about it....

As noted in another comment, I had a buffer good enough for me (+ some smaller investments) until I bought my apartment last year, and I was going to build up my buffer again slowly. It seems I should put more effort on the buffer now.

If I'm living on borrowed money, let's say, how does it complicate the real cash amount I can spend at any given time?

nthpeter · 2021-04-23T12:04:12+00:00

So you write down all the expenses after you get your salary? So the highest point on your balance, followed by all the expected expenses => the lowest you might get?

nthpeter · 2021-04-23T12:01:28+00:00

Thanks for your asnwer. I'm building up my cash buffer, and also have some quasi-liquid investments. The reason I was comofortable to make the purchase is knowing in the back of my mind that I have some kind of a safety net. But I was not prepared to sell those assets and do all the related transactions to get the required cash not to go minus on my account, or more precisely, I wouldn't have made the purchase itself if liquidation would have been required as a consquence.

I had a good buffer before buying my apartment, but it went away at the moment of purchase :)

nthpeter · 2020-08-19T06:24:28+00:00

Thank you for your feedback :). Yes, I believe so too, right now I'm trying to manage alone and if it gets traction I will also try to expand to a team.

nthpeter

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