Managing your bank accounts
Using a number of bank accounts can really help make managing your money easier. I’ve generally found that when people use a number of accounts they seem to have better awareness of their spending and therefore make better financial progress.
I don’t believe the number of bank accounts you use matters, rather its more about what makes it easy for you to track your spending. Some people get concerned about the cost of multiple accounts but in the overall scheme of things the small cost should be well and truly outweighed by the benefits. Also if you have a mortgage you may get extra accounts for free or pay one fee for up to a certain number of accounts. Check with your bank and see what they offer.
They best way to set this up is to have your income paid into your main day to day account and then do an automatic payment into your other accounts. It might take you a few months of juggling to get the amount of the automatic payments correct. Here are some types of accounts that you may find helpful:
Day to day account – this is the account you use to pay for all your monthly expenses like rent, mortgage, groceries, insurance, petrol, telephone, electricity etc. This would be the account that you pay all your needs out of – the expenses that are essential.
Debt reduction account – I think it works well if you pay all of your debts from one account. It makes it easier to track your progress which can be very motivating. Also once you have paid off your debts you could turn this account into a savings account as you have already established a habit of putting this amount aside.
Mortgage account – pay you mortgage from this account and where possible put anything extra you can towards it so you can reduce the time of your mortgage and save money in interest. It will depend on how your mortgage is structured whether you can pay this off regularly or in a lump sum.
Big ticket account – this is essentially your short-term savings account. Where you save up for the more expensive items which you would like to have like holidays, new car, furniture, etc. You may decide to have one for each major goal and name the account to match the goal.
Emergency account – this is money to be used for emergencies. If you don’t already have some money set aside, plan to build up this account so that financial obstacles which come your way do not knock you off your feet. Ideally you want to have 3-6 months of your expenses in this account.
Get ahead account – this account is your long-term savings. This money is used to get ahead financially which could be for a house deposit or other assets which will build your wealth.
Sanity money – or pocket money is the money which you can spend on anything you choose. You could also use cash for this instead of a bank account.
Baby account – if having a baby is on the future plan then you may like to put aside some money each paycheck to save for the things you will need like a pram, cot, clothing etc.
Renovation account – it you have a lot of maintenance to do on your home or a planning a big renovation then this could be useful so you can manage the costs easier.
By Lisa Dudson