BLOG – Budgets alone don’t work. You also need multiple bank accounts

There’s a lot of debate and discussion about budgets.

– On his website Sunrise TV host Kochie writes ‘It’s vital you have a budget and stick to it. A budget highlights where your money is going, what it’s being spent on, on how you can cut down.’
– In an article in the Sydney Morning Herald, accountant and author Melissa Browne writes ‘You’ve tried many different types of budgets over the years and they all gradually fizzled out, along with your enthusiasm’
– Scott Pape, the Barefoot Investor, believes in ‘buckets’. There’s the Blow Bucket, for daily expenses, the occasional splurge and some extra cash to fight financial fires; the Mojo Bucket, to provide some ‘safety money’, and the Grow Bucket, to build long-term wealth and total security.

Here’s what I’ve found… Budgets alone don’t work. You also need multiple bank accounts.

I’m not a Financial Planner and I’m not providing Financial Advice. I’m sharing what works for me. My own experience of how I quit impulse shopping and saved my money (38% of my salary). (It’s advisable to obtain financial advice from a qualified lawyer, accountant, tax agent or other business advisor).

I’m a believer in Parkinson’s Law. Parkinson’s Law is the adage that “work expands so as to fill the time available for its completion”. I apply Parkinson’s Law to money, whereby “Whatever money you have, you spend”. I strongly believe, from my past experience when I was a student in London, that when you have all your money in one bank account, you end up spending it. All of it.

At the beginning of 2014 I set myself a goal to save 25% of my net salary each month. I was lucky. I had a salary. The amount of money I received each month was fixed. Everyone’s circumstances and financial obligations are different. I found that getting my banking in order AND setting up a monthly budget worked for me.

  1. First up. I set up 11 bank accounts – The bank wasn’t very happy about this, but I persuaded them to agree. When I was a child, my grandmother had three or four different jam jars where she kept cash for different household bills. Eleven accounts allowed me to replicate Gran’s jam-jar system in the digital world.
  2. Then. I set up a monthly budget – I named each of my eleven bank accounts and set a clear monthly budget for each account. On the day I’m paid, I transfer money into each of the accounts. I transfer the money between each account, which allows me to track when I withdraw cash, what I spend, how much I spend and where I spend it.

I’ve found that when you don’t have your money in your everyday bank account, you can’t spend it.

It’s simple, but this is what works for me.

I’m Rachel Smith and I’m Underspent. I didn’t buy anything new or 2nd hand in 2014 and saved $52,680 (38% of my salary). I quit impulse shopping and saved my money. I changed my spending and transformed my savings. It started as a lifestyle experiment, but it changed my life, so I kept on going. I’m the Author of Underspent and I’m teaching people how to break the habit of impulse shopping in 7 steps through my Underspent book, free monthly challenges and my weekly blog.

Underspent book is available in paperback ($12.99 or £7.40) and e-book, iBook and kindle formats ($2.99 or £1.70) in all online and high street/shopping centre book shops or buy a signed paperback copy ($12.99 + P&P) direct from me via my website ‪‪‬. I’ve purposely made the Underspent book affordable. Email me ‪‬ about Bulk Orders (it’s a great resource for your staff, clients and customers) OR you selling my book at your bank/business/office/shop/café/school and you receiving 50% of the profits‬

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