I’ve been asked a few times now about how I manage my banking, paying bills, sinking funds and how I am managing everything now that I was made redundant. I have previously made a post similar to this specifically about my banking structure but now I’m going to go a bit more in depth into everything.
I’ll preface this with saying that personal finance is exactly that- personal. So don’t ever feel like you have to do things the way someone else does. You do what works for you! If anything, this post is written with the intention that maybe it will help someone find what works for them.
My banking set up
I bank purely with ING and have ever since reading “The Barefoot Investor”. I didn’t change how I structured my accounts though after reading the book as I felt like my methods were already working for me, I just changed my actual bank.
Below is a picture of my basic banking structure. I have two everyday accounts with physical cards, the rest are online savings accounts.
In my everyday spending account I leave money for the direct debits that come out and then in my splurge account is my money for discretionary spending as well as my food spending. Food isn’t technically a ‘splurge’ but I find it easier to put it together with my spending money on the same card. My savings funds are mostly ‘sinking funds’ and my emergency funds. More on them below…
Two of my savings ‘accounts’ are primarily ‘sinking funds’ accounts. I like to keep these separate from my everyday accounts. This helps me never spend over what I have in my main bank account and I always know that there is money set aside for my bills. No-one wants to accidentally spend the money that was meant for rent.
All five of these ‘accounts’ are kept together in one account so that I can get the highest savings interest rate I can because of the higher combined balance. I keep track of the balances of each account in a spreadsheet. I do know many people who keep them in totally separate accounts so as not to confuse the balances. You do what works for you.
Now you may be wondering “What even is a sinking fund?”. A sinking fund is formally defined as “a fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset”. So in my adjusted simple terms, it’s a place where I put away small amounts of money each pay for bills or expenses that will happen in the future. These may be bills that will happen next week or next year. When I need to pay the bill I then transfer the money back to my main account and pay it from there.
Here are the things I put money away for:
- Utilities (Electricity, Gas, Hot Water)
- Phone & Internet (they’re on the same bill)
- Gym membership
- Home & Contents Insurance
- Presents & Christmas
- Car expenses (registration, petrol, roadside assistance, insurance, servicing, tolls)
Above is a snapshot of the exact spreadsheet that I use to track my sinking funds. I have removed some of the information, but you get the idea. I have each type of item in a separate column and the current balance is at the bottom. When I add or remove money from an item I write it on a separate line. The total at the bottom uses formulas so that it updates itself as it goes.
Below is an example of my ‘future sinking funds’ spreadsheet. This helps me pre-prepare for expenses in the future. To do this I find out when exactly I will need to pay for an item and then on the left column are my pay dates (every 2 weeks). From each pay I then work out how much I need to put away. For example; if you have an expense coming up in 10 pays time and it will cost you $500 then you know that you need to put away $50 per pay to have the money there when the expense comes up.
This is the theory behind each of these expenses below. The lines that are coloured in are already passed dates and the dark pink highlight is the next pay day (this week). From my next pay for example I know that I need to put away $30 for car registration, $50 for Christmas and $100 for my utility bills. I don’t need to start putting away for my drivers license renewal or my roadside assistance until the 21st February 2019. Having this spreadsheet makes me feel really in control of my money and I always know when things are due and I don’t ever have any bills sneak up on me.
Ok now the harder parts are done! I feel like I may have confused some people with all of that.
In terms of savings I try and save about 25-30% of my pay each fortnight. This money sits in my high interest savings account (I get 2.8% with ING). I do want to invest but i’m still undecided on where I want to invest yet. I keep track of this in the spreadsheets mentioned above just so I know where my balance sits.
My savings will eventually be used for a house deposit but at the moment it’s being used for things like dental work and expenses for setting up my business.
I have two emergency fund accounts at the moment. I started out with my $2,000 emergency fund as recommended in ‘The Barefoot Investor’. If you don’t have an emergency fund this would be the first thing I recommend that you do before anything else. Putting aside around $2,000 means that if something does happen you have the money there and you don’t need to put anything on a credit card (I don’t even have one anymore) or worse, take out a high interest loan. It can take awhile to save the $2,000 if you don’t have a lot of money but if you can put away a little bit each pay you’ll be better off for it.
Once you’ve paid off your debts both Dave Ramsay and The Barefoot Investor recommend that you put aside somewhere between 3-6 months of your expenses (or your income) as an emergency fund. This fund is intended to be for situations such as if you lose your job or have an accident and can’t work. It’s there to make sure that if these things happen you will be ok until you can find more income.
When is it ok to use your E.F?:
- Lost your job
- Flights etc to visit a dying relative
- Interstate funerals
- A major necessary appliance in your house dies (e.g your fridge)
- Major vehicle repairs
Your emergency fund is not meant to be used for things like:
- New items that you don’t need to live (e.g a TV)
- Christmas or gifts
Handling money during redundancy
At the time of writing this I’ve just secured a new full time job (yay!!) but for the last month I have been using my 4 month Emergency Fund to live on. For me the easiest way to handle the money from my redundancy payout was to put it into my online savings account and basically hide it from myself. I continued my pay myself the same wage that I had been receiving so that things were still quite ‘normal’. Out of this pay I then transferred money into my various sinking funds and spending accounts as needed and I saved the remainder.
Now that I’ve secured a job the money will be used only until I get my first pay from them. After that it’ll become a 3 month Emergency Fund as the balance has gone down by roughly one month. I probably won’t increase it back to 4 months as I think 3 months will be enough for me. How much you put away is entirely up to you and your situation. As a single person with no kids, 3 months is enough for me.
I hope you enjoyed this article. I’d love to hear any tips you have or different ways you manage your money.
How do you manage your finances? I’d love to hear your comments.