For the visual-learners in the audience, I have diagrammed the flow of my money.
Regular income is deposited into my primary checking account. Scheduled monthly payments are made, and allocations for non-monthly scheduled payments are then deposited in my online savings account.
Irregular income, such as it is, is deposited into my primary checking account, and used, if needed, for scheduled monthly payments. If not needed for scheduled monthly payments, money will be transferred from my primary checking account to my online savings account.
Business income is deposited in my business checking account. All business income is then transferred to my online savings account, set aside for non-monthly payments and long-term savings.
Any non-monthly scheduled payments are made from my interest-bearing checking account. Money necessary for non-monthly scheduled payments is transferred from my online savings account to my interest-bearing checking account, as needed.
Contributions to Roth IRAs and Education Savings Accounts are made from my interest-bearing checking account. Again, these contributions are first transferred from my online savings account, to my interest-bearing checking account, and then a check is written for each contribution.
I have it set so that I make all of my scheduled monthly payments on the first day of each month. As soon as payments clear, I can then transfer remaining money to my online savings account, leaving a cushion in my checking account for unforeseen-expenses. Not included in this diagram, but very important, is my envelope system, which I use for managing my cash, to pay for budgeted items like groceries and gasoline.
I am a big fan of the The ING Direct Orange Savings Account and I use it as my online savings account. I also use ING’s Electric Orange as my interest-bearing checking account. Having both accounts with the same company, it’s very easy for me to make instant transfers.
For more about scheduled monthly payments and scheduled non-monthly payments, please see this recent article about how to create a zero-based budget.