Do you find it hard to keep on top of a budget? Maybe you once set up a budget on a spreadsheet but you haven’t looked at it in months and right now you don’t even know how much you have left to spend before the end of the month. So often our budgets can become too complex and so hard to manage that we end up not doing it, and then we don’t really have a budget at all. In this episode, we’re going to talk about one really simple thing you can do to guarantee that you’ll stick to budget every month. It’s easy to set up and completely automated so you don’t ever have to put in any more effort.
The problem for a lot of people is that everything happens in one bank account. You might have multiple accounts, maybe some with different banks, but most people have one main account that your income is paid into, and all of your spending and regular payments come out of. And with so much happening in one account, it’s really hard to see whether or not you’re on track with your budget.
The answer is to open a new bank account. You can usually do this with your current bank, and in most cases it can all be done online in less than an hour. You might even already have another account that you don’t use much that you could make use of. Then what you’re going to do is use your old account for your income and all of your regular payments. So your salary goes in there, and out of there comes your rent, your electricity bill, your gym membership, your regular giving, your Netflix subscription — anything that comes out on a regular basis. And if any of those payments aren’t automated, now would be a great time to set up a standing order or direct debit to automate those so you don’t have to worry about them again. So your existing account now becomes your regular payments account.
Then, if you haven’t already, you need to sit down and work out what you want your monthly budget to be for all of your other spending. Groceries are going to be a big portion of this, but there are also lots of other things to consider like travel expenses, clothes, healthcare, presents, eating out etc. You might want to take a look at your bank statements to see what your spending has been over the past couple of months to help you come up with these figures, but also think about what your priorities are and what you want your spending to be.
Once you’ve come up with these figures, add them all together and this becomes your monthly spending budget. The new account you set up should be a current account so that you get a debit card, ideally one with no overdraft, and this will become your spending account. Set up a new standing order from your regular payments account to your spending account for the start of each month equal to your spending budget amount. And now you’re going to do all of your spending from your new spending account.
Now every month you’ll have a really clear idea of where your spending is at and how much you have left until the end of the month. All you need to do is glance at your bank balance. And you can’t go over budget! If you have no overdraft on your spending account, it will be impossible to overspend.
This system is great because it takes only a little effort to set up, but once it’s done, that’s it, everything is automated and it takes no effort to maintain.
My wife and I used to have a single joint account for all of our income and outgoings, but we had a system for keeping to budget. Every time we spent money in a shop, we’d write down how much we spent and subtract it from the total budget. Unsurprisingly, after a while this became so onerous that eventually we just stopped doing it altogether, and then we had no idea what we were spending! So now we have a separate spending account and it’s so much easier. We’ve been doing it for years, and it works really well.
If you want to take this to the next level, you can add more accounts for long and short term savings. Perhaps you want to set up an emergency fund, or save for a holiday, or for next Christmas, or for your MoT — you could set up a new account for each of these. Some bank accounts allow you to have separate saving pots within one account, which is great way to handle short term savings too. The key thing is to make sure everything is automated so you don’t have to manually move money around each month.
Whatever your finances look like, having multiple accounts is a great tool for helping you to stick to a budget and bring your spending in line with your priorities.
I hope that’s been helpful. If you have any questions please get in touch. You can email us at firstname.lastname@example.org. Take care.