Finding a System for On-Time Payments

Damage control

Doing Damage Control with "Safety Valve" Accounts
Consider how one couple's acceptance of reality led to a brilliant idea for creating a workable system for paying bills on time. Like every other couple, Beth and her husband hate bouncing checks, but when two people use a single checking account, it's easy to lose track of the available balance and spend yourselves into overdraft. This problem can occur for a number of reasons:

• One of you is a spender and the other a saver.
• One is good at tracking spending and the other is not.
• The one who pays the household bills doesn't always communicate the balance to the other.
• One or both rely on the ATM's balance statement instead of their own calculations.

When you're sharing something tangible, like cereal or shampoo, it's easy to tell when it's all gone. Not so with money. People using the old cash-under-the-mattress system never had our problems: The money was either there or it wasn't – no line of credit, no check-clearing period. Nowadays, the money we spend exists mostly as data in a computer, and transactions rarely require cash in hand. This makes it easy for both of you to spend the same dollar – sometimes more than once!

Beth accepted that there was no way she and her husband could expect to never bounce another check – they're just not able to be that precise. What she could do, though, was minimize the damage. She made a few changes and immediately saw a huge improvement.

Follow Beth's system to address this problem for yourself:

1. Open two new checking accounts: one for you and one for your spouse. These can be individual or joint accounts, but each must be used by only one of you. You will now have the old joint checking account (the main account) and two new ones (we'll call these the safety valves).
2. Do not carry checks or ATM cards for the main account in your purse or wallet. File them away at home.
3. Deposit all income from both of you into the main account.
4. Pay the big household bills (mortgage, insurance, utilities) from the main account.
5. Transfer a set amount from the main account into each of the safety-valve accounts, making absolutely sure you've left enough in the main account to cover the checks you sent out for bills.
6. Use your safety valve for your day-to-day purchases and cash withdrawals at the ATM. Never transfer money from the main account into a safety valve without thoroughly balancing the main account!
7. The person who pays the bills from the main account keeps that account balanced and reconciles the bank statement. Each of you is responsible for balancing your own safety valve account.

This system eases a lot of tension in couples where one or both aren't that great at managing money. As Beth notes, they still bounce checks from the safety valve accounts once in a while, but at least they know that the most important bills are always paid, and they no longer argue over whose fault it is that the account was overdrawn. This way, they can still have a joint account, something they believe in as a symbol of marital cooperation, but they can also minimize the impact of their slip-ups on each other's nerves and on their overall credit rating.