This is the number one thing I think everybody should do….. direct your money where you want it to go, it will stop you wondering where it goes. A budget is great, I certainly have a loose one which lays the foundation to this. But a “banking plan” is the thing that helps me always know that I am on track, helps me make great decisions and allows me to not think about this stuff at night ……..
It sounds complicated but it is super easy….. It’s just dividing every bit of income that enters the household into three types of bank accounts, a fixed account, fun account and future account………
Something like the following:
Why I do it?
- I have found I better self select and monitor my expenditure in the fun area…. If I have something coming up (eg going out to dinner), I will spend less through the week to have additional funds available.
- I find it can help reduce personal guilt/anxiety about spending in fun areas…. If it fits in my program it doesn’t matter what I spend my fun money on – it literally is there for anything that I want, my personal sanity.
- The fixed account takes care of itself. In that month when the big expenses all come at once, there is a heap of money in there. You have to do the work upfront to make sure there will be enough going there each week – it’s a bit of guess and check at the start, but through time you get it right…. And it removes that anxiety of seeing a very large credit card bill that month.
- It gives you a feel for what you are putting away for the future, you can then plan around these things.
- It establishes great habits for when income increases. rather than the, “the more you earn, the more you spend, the more you need” – you typically can get more money towards your Future account.
- You end up having a better relationship with your money, you worry less and wonder less about where it has gone.