Since starting this Debt Free Journey I’ve found it interesting to see how other people organise their bank accounts and their budgets. Today, I thought I would share with you how I organise my bank accounts. I have previously shared a post on how I budget. You can find it here if you’re interested.
What initially got me started on this journey was “The Barefoot Investor” by Scott Pape. His solution for organising your bank accounts stuck with me and although I have since adapted it to my own liking, I still love his original method.
Scotts’ method is relatively simple but can seem quite complex when you first look at it. It’s been broken down further in the image below.
Get your buckets together
Firstly, all your income goes into your everyday account ‘bucket’ called ‘Daily Expenses’. You then split this income into your sub buckets. Scott recommends that approximately 60% of your income goes to ‘Daily Expenses’ (DE), which covers the essentials e.g rent, food, petrol, car registration etc. Anything that is a necessity. Depending on how big your DE is will then give you the remaining splits for your other accounts.
Scott then says to set aside 10% into an account called ‘Splurge’. This account also has its own card so that you don’t spend money in your DE that is already assigned to bills. If your DE is higher then 60% you may need to put less into ‘Splurge’. Your ‘Splurge’ account is as you guessed it, money for you to spend however you like. This is the non-essentials e.g coffee out, Netflix, magazines etc. This is your play money.
Out of the remaining 30% he says to send 10% to the ‘Smile’ account for long term savings for the things make you smile, e.g holiday. I decided not to set up a smile account. This is just because I don’t really have things like holidays, weddings etc to save for. Remember, you can adapt all of this to how it suits you. It’s not set in stone.
The final account (and one of the most important) is the ‘Fire Extinguisher’. This is for you to fight your financial fires. This money isn’t really an ‘account’ per-say but is for paying off debt. If you want to you can of course send more then 20% to debt. I personally send as much as I can.
How I adapted this to my own banking
As I mentioned above everyone is different and this approach won’t work for everyone. Personally, I decided to slightly adapt it for myself. Below is my bank accounts structure (I bank with ING). The two on the left have cards attached to them. The accounts on the right are high interest online savings accounts. My pay goes into my ‘Daily Expenses’ account and I transfer amounts to the other accounts.
I tend to overspend if I haven’t put the money aside into another account so I send pretty much everything into separate accounts and leave a small buffer for my direct debits in my ‘Daily Expenses’.
My ‘food and spending’ money goes into the account of the same name. The Emergency Fund is an account set aside for large emergencies. I need to build this account up more. Between the two remaining online savings accounts I set aside amounts for each category below.
Long Term Expenses
- Phone/Internet Bill
- Utilities (Electricity, Gas, Hot Water)
- Home & Contents Insurance
- Car registration
- Car Insurance
- License Renewal
- Car Maintenance
- Roadside Assistance (RACQ)
I put money aside each pay for all these bills (including those paid quarterly etc). To keep track of how much money has put set aside for each thing I use an excel spreadsheet. When I need to pay the bill for each area I transfer the money back to my main card account and pay it from there. This helps me never spend over what I have in my bank account and I always know that there is money set aside for my bills.
If you’re interested in signing up with ING I have a code below to get you $25 for free in your account (new customers only).
Want $25 for free?
Head to ing.com.au/everyday and open a new Orange Everyday account and enter EZB071 in the promo box at the end of the online form (this part’s really important, as otherwise neither of us will get the bonus!)
- Deposit a minimum of $1,000 into a new Orange Everyday account within any calendar month by 30 June 2018.
- Open and make a deposit into a new Savings Maximiser by 30 June 2018
- Use your Orange Everyday card to make 5+ purchases within any calendar month by 30 June 2018.
Let me know if you liked this post and what you want to see from me in the future.