The Transfers Method of Budgeting
- Landon Tan, CFP ®
- Jul 1
- 13 min read
Do you ever feel like when you're budgeting, you are just struggling to find time to do all this categorizing? Or if you stick to it, you still don't know how much you have spent in the last month?
If so, you may like the type of budgeting that we at Query Capital refer to as The Transfers Method. This method came about through trial and error and in conversation with other personal finance geeks who co-evolved into the same general school of thought.
Clients are constantly telling us how this has changed their life, made things easier, and just brought such a sense of peace and clarity to their everyday spending.
I’ve gone in-depth in a YouTube Video, here. If you prefer a written piece on the same topic, keep reading below.
The Mechanics of The Transfers Method
Traditional budgeting strategies involve categorizing transactions that happen across many different accounts. In contrast, the Transfers Method uses a small number of actual bank accounts assigned different purposes. You transfer money into the accounts and spend from them for that purpose.
Checking Account 1: Bills & Recurring Expenses
Receives your income
Pays for bills such as a rent & utilities
Pays for all other recurring and automatic expenses such as media subscriptions
Transfers money to other accounts
Checking Account 2: Weekly Spending
Receives a weekly transfer from Bills Checking (Fridays are recommended because weekends tend to be most expensive)
Pays for everything else regardless of want or need
And we'll get more into the how a little bit later. But for now, I really just want to talk about the why because the ideas behind it require a bit of a mental shift.
Why Do We Budget?
In order of importance, this is why we budget to get:
Enough money for today (i.e. spreading spending wisely until your next paycheck, and not going into debt)
Enough money for tomorrow (i.e. saving)
Clarity on what’s going on with our money
The problem with very transaction-categorization-forward budgeting methods is it flips these priorities on their head. Like, who cares if you spend $200/month on “Shopping” and $300/month on “Transportation” if you are running out of money?
Many people feel that there's something wrong with them because they struggle to find hours every week to assign categories and organize data to create these nuggets of budgetary information. And people struggle while there’s often little payoff for this part-time job in personal analytics.
The nerdy few who thrive in category assignment and are able to spend and save at reliable rates should continue what they’re doing. For everybody else, the Transfers Method might be right for you.
Why Bank Accounts
The idea of allocating money to different buckets for different types of spending shows up in many app-based budgeting systems including YNAB, but the key mechanism here is transferring money from one actual bank account to another.
The reason for using actual bank accounts is that it gives you solid evidence of how much money is available. How many times have you added up numbers and made an error in your calculation? How many times has the bank made an error in the balance of your bank account?
Instead of simulated piles earmarked for a certain expense, you just have the truth sitting right in front of you, and no work is needed to find it because the categorization happens at the time of the purchase based on the account it is drawn from.
Abandon “Wants and Needs”
It usually takes a few rounds with clients to understand that the Transfers Method is not based upon wants and needs but rather payment style. I think part of what is so scary about budgeting is that it’s often framed as a way to punish oneself or limit pleasure and ease. So letting go of the good/bad dichotomy often feels dangerous.
To me, a budget is simply an arrangement of resources, akin to the organization of the things in your fridge. You don’t put the vegetables in the crisper because they’re good or the milk on the shelf because it’s bad, it’s about serving the shape and characteristics of those resources.
Framing the budget as organizational rather than a moral task helps you climb out of financial avoidance and start to play with what would be effective for you in your life.
Examples of Bills vs. Weekly
To separate the two primary accounts, we’ll draw a distinction between bills/recurring expenses and other weekly spending.
Weekly spending (which we sometimes call “variable” or “everything else” or just “spending”) is the spending you do day-to-day as you go about your life. This type of spending is “discretionary” in the sense that it involves making a decision, but that can include things that would be considered needs, like groceries or gas. It includes your medical co-pay, your night on the town, and your new phone charger. Allocating a pot of money for decision-driven spending allows us to feel the trade-offs between different things, and it also means that things that are easier to skip have to move to accommodate more urgent purchases, which stabilizes your spending even when “need” type surprises come up.
Bills & Recurring Expenses are expenses that are paid at a fixed price on a particular cadence, like rent or subscriptions. It also includes things that are billed to you automatically, like utilities and tolls. Those are things that, while you might make lifestyle changes that influence the final amount, it’s likely to sit at a predictable average over time. Crucially, putting automatic bills aside keeps you from having to think ahead when you're doing day-to-day spending. Money for bills is also protected from an overdraft or emergency transfer.
Calculations
Getting started with your transfers budget requires knowing how much you’ll need to hold back in your Bills Checking each month and then allocating the rest to your spending account.
In order to figure this number, you want to actually list out every recurring expense that will count. Imagine that the Bills Checking is a VIP club and only expenses on the list get in.
Start with your take home pay, then subtract each bill from the list. Then break up the remainder into a weekly amount to transfer to your spending account.
As your subscriptions or other fixed expenses change, you’ll need to recalculate this amount. If it’s helpful to you, you’re welcome to use this template to keep track. I’ve also linked to a cash flow chart to help you map out your plan.
Note that if you have non-monthly expenses, the balance of your Bills Checking will build up and then fall back down, and then average out. That is normal, no one has 100% once a month bills.
It’s imperative to have a buffer in your Bills Checking so you don’t get knocked out by these variations. If you don’t have enough to do the transfers without overdrafting, you’ll probably need to save up a little first.
Ideally, we keep 1-2 months of expenses in the Bills Checking, rounded to a nice multiple of $5K so that it’s easy to eyeball if you’re in range. For you yield warriors, don’t let the fear of a little lost interest keep you from living your dreams (having a sustainable balance in your checking account).
If you notice that your account is not balancing out, it’s probably because you have more fixed expenses than you counted or you’ve been making extra transfers to your spending account (don’t do that).
Irregular Income
The same ebb and flow might happen if you have irregular income. If it’s a reliable amount, like a quarterly bonus of 5%, you can probably include the whole amount in your regular budget, and no special adjustment is needed.
If you have irregular income from a W2 job, like your hours vary, you want to build the budget on the lower end of your expected income. You likely want to keep a higher buffer so that you don’t end up having to throw out your plan on a slow month. If the balance of your checking gets huge, you might move the extra into savings or adjust up your planned spending.
If you own a small business and live on the variable profits of it, you want to have a separate checking account for your business. Keep a large buffer for business expenses and then transfer a “salary”* into your personal bills checking. A lot of people have a mental block about doing this, but it is incredibly stabilizing to know how much you have to live on, even if that is on its face a lower figure than the 100% of the possible income you might transfer to yourself ad hoc.
*Unless you have a business entity like an LLC with an S Corp election, don't literally pay a salary from a payroll provider. Just make a transfer from business to personal.
Large & Special Expenses
At this point, you’re going to ask, “what about travel?” The reason I don’t lead with this answer is because if you are able to fit all types of spending into your Weekly Spending account without issue, then you should stick with that. The goal is to have as few accounts as possible while getting the separation you need to not derail your plan.
Large and special expenses are the same as Weekly Spending in that they are decision-based and require support around what is affordable at any given time. But they differ because they are lumpy and if they are much larger than a couple weeks’ transfers, you’ll be tempted to draw from the buffer in your Bills Checking.
So in most cases, our clients will have at least one “Large & Special Expenses” bank account as well. An additional spending account can add in a sense of freedom and permission into special spending categories that are important to us while also protecting our system from being dismantled.
I would start with just one special account that you use for any lumpy expense, such as a big vet bill, or a home repair. If it causes a problem to not be separated, it’s better to start with fewer accounts and add more later down the line when you know you need it rather than to lead with complexity you might not need.
You’ll calculate this amount based on what you think you need for a year, break that into a monthly payment, and then re-calculate your weekly transfer for everything else. If that’s starting to look small, consider whether you prefer adjusting your travel or your bills. The budget plan should iterate to suit you better and better over time.
Credit Cards
Now, let’s talk about credit cards. First off, the Transfers Method is much simpler if you do not use credit cards. If you are not absolutely married to rewards points, I recommend starting the new budget using only debit cards. This makes it so that you have maximum visibility into how much money you have available and gives you one less account to think about.
I have seen easeful reductions of 15% or 30% spending using the Transfers Method, which quickly overshadows the ~2% benefit of rewards cards. I often think of rewards cards like a goalie that gets 2% more saves if she wears a dark veil during the game. And the benefits that people get often take the tone of a vice, where they are used for their rewards even when they lead to major issues or have been sworn off before. It’s such a strong cultural attachment that many clients even feel that they would be financially irresponsible to not pay with a credit card.
With that speech over, here’s how you do the Transfers Method with credit cards. The big non-negotiable is that you cannot use the same credit card for Bills and Weekly Spending. If you think about it, what that does is takes your cash flow, goes to great lengths to separate them, then mixes them up with a credit card, then tries to sort out the mix. If you must obey the category incentives set forth by your credit card masters, please do not waste time on the Transfers Method. You’ll want to use an app that simulates categories or buckets based on transactions rather than transaction source.
You want to have a unique credit card assigned to each bank account. For instance, subscriptions on a bills credit card paid off automatically each month from your bills checking is very seamless.
The area that requires a bit more attention is the credit card you’ll assign to your Weekly Spending. It might sound obvious, but make sure that the balance of your credit card is always lower than the balance of your checking account.
Then, pay off your variable credit card weekly from the checking account. Do this on Friday, the same day as the transfer in to that account. It’s fine to keep a monthly autopayment, but clearing it out weekly is critical for making the checking balance reflective of the amount you have available to spend.
Travel spending should be limited to big ticket items like airfare and hotels, so you should only end up with a handful of transactions in any given month. So it’s okay to mix and match with the credit cards here. You just reimburse the account that pays off the credit card or go in and pay the credit card with your travel bank account for the amount of the transaction. I recommend using the exact amount of the transaction i.e. $1,789.24 so that it’s easy to match if you’re ever wondering what it was for.
Here’s a visual of a cash flow chart in the credit card scenario.
What Not to Do
This is your budget and your life, and no two people’s budgets are the same. There are a lot of variations that can make sense, too. But there are a few things that you absolutely should not do if you want this to work. If you don’t believe me, fine but please just try it my way first so that you don’t do this, have it not work, and give up before seeing it work well.
Do not do the Transfer Method in your mind. Do not do it in an app. The transfers method is not the transfers method without making actual transfers. The whole point is reducing mental load and the need to calculate. If you try to do the Imaginary Transfers Method, it will not work.
Do not try to use different banks for your bills and weekly checking accounts. A lot of people want to do this because they already have a couple of institutions and it seems hard to open a new account or switch their payroll to the new bank. But the lag time for transferring between institutions and the reduced visibility sabotages people, so do not do this. It does take dedicated time to change your systems and set yourself up to success, but after it’s established it takes monumentally less effort. If you don’t have time to make changes, bookmark this and try it when you do.
As discussed above, don’t use the same credit card for everything, because it cancels out the point of separating out bank accounts. It becomes a more complicated and frustrating way of doing nothing at all, and I would hate to be the source of pointless makework for you. So remember not share credit cards across Bills and Weekly Spending.
Finally, stick to the schedule and don’t transfer money back and forth. I see this both in the “I wish to spend more money and so I’ll just transfer myself some more” and the “I don’t think I need so much, I’ll just transfer some back.” Sometimes, it’s one leading to the other! If you do this, it is a more complicated way of having one account.
Budgeting does not make you have more or less money to spend, it just makes it the realities of it less surprising, and it protects the spending that matters to you most. The more you can accept the shape and cadence of the transfers, the more the shape of your spending will form to it. A bowl is not "too rigid" or "not fun" if doesn't allow holes, it's just a non-broken bowl.
Initial Setup
The Transfers Method can be a major time saver, but it requires upfront work. You should expect that doing this process well will take about six months.
End of month one, you'll have identified calculated your expenses, opened accounts, changed payment methods.
At the end of the third month, you'll have gotten used to a new way of operating. You'll have worked through the initial adjustment and fixed the remaining things that invevitably pop up while you're transitioning.
By the end of six months, if you fully engaged in the process, you've fully lived the Transfers Method.
So give it six months total to evaluate. At that point, if you don't like it, it will be that it truly isn't for you instead of that you simply hadn’t finished your setup.
If it’s not a good time to commit, I recommend not starting. There are other things you can do that can make a positive difference without rewiring your whole system.
Some easier strategies are putting saving/debt paydown on autopay and then noting the balance of your accounts once a month. Other simple practices for people who are really struggling to get started with something are to try mindfulness strategies like opening your accounts once a day and observing them and your reactions.
Also, if you pursue traditional category-based budgeting, you can later overlay it with the Transfers Method, as one targets detailed insights and the other is just a mechanism for spending the overall amount you intended to.
Parting Words
Cash flow is the foundation of any financial plan, as it drives long-term savings. Getting deeply in touch with your spending gives you the power to allocate your resources to things that are meaningful to you, rather than just walk through your consumer interactions in a fog.
To me, there is no level of wealth that makes the budget irrelevant. Even if you don't have to look at the cost of a sandwich doesn't mean that you don't make tradeoffs. The same laws of physics apply; a dollar more for avocado is a dollar less towards other goods, whether for yourself or someone in need.
And there is no level of poverty where concepts of structure and awareness can't provide some incremental help in managing the precious amount you have access to today.
Getting in touch with a method of budgeting that works for you requires emotional, administrative, and relational work, and that is not easy. Each act of intentionality with your resources makes you more deeply rooted in the present of your life, walking alongside its limits and its possibilities.
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