Are you struggling to save money? Or are you wondering where all your salary disappeared? Or maybe you’ve tried several budgeting techniques but struggled to stick with it? Or, you just want to get better at managing your money! ๐ฉ
This is a fool-proof strategy that’s been used for years to manage money. No math, no spreadsheets, just a simple technique that will definitely work if you are willing to put an hour into it.
STEP 1: Budgeting
First and foremost, break down your monthly income into three categories:
- Needs
- Wants
- Savings
Of course, the more you save the better! ๐คท Now that you know what are these 3 categories are, go through 2-3 months of your bank statements. Calculate how much you spend in each category and how much you save. If you don’t think your expenses can be fit into the 50/30/30 Budgeting Rule, create something more realistic, but as close to the % as possible. Once this is sorted, you’ve pretty much done a fair amount of the groundwork.
STEP 2: Bank Accounts
Now, open 5 different bank accounts (yes, 5!!!! ๐ฒ) which could be a combination of 2 current and 3 savings accounts with 2-3 banks. Ideally, you would want them to be zero balance accounts so that you donโt end up paying for not maintaining a minimum balance. These accounts are:
1. โNeedsโ Account
This is the account which you will use to pay off your monthly needs. Since the needs for a month are more or less constant, this will have a fixed amount of money in it every month.
2. โWantsโ Account
As the name suggests, this account will have money to meet your expenses to get your nails done, eat out and all other expenses which are categorized as โwantsโ ๐
3. โSavingsโ Account for Emergency Fund
I cannot STRESSS ENOUGHHH the importance of having an emergency fund. An emergency fund is essentially a pot of money kept aside to meet your expenses during an unforeseen circumstance. Ideally, you should aim to build an emergency fund of at least 6 monthsโ worth of your expenses.
4. โSavingsโ Account for Short Term Goals
Want to buy a new phone? Or maybe, go on a holiday? Use this account to save up little by little each month so that you can spend later, guilt and credit-card free! ๐ณ
5. โSavingsโ Account for Long Term Goals
This is your account to save for those long-term goals in life such as retirement, home etc. Itโs okay to start small but start early!ย
STEP 3: Auto Debit
Now, all you have to do is set up an auto-debit of the required amount from your salary account to these 5 accounts! It is best to set the auto-debit date the same as the salary date. Voila, your budgeting is now AUTOMATED! ๐คฉ
Why does this work?
This is a foolproof method that ACTUALLY WORKS!
- Because you have organized your money into different categories, it is easier to track your spending. It also saves you from the cumbersome task of detailed budgeting every month.
- Most importantly, your brain starts to see only the money in your spending accounts (i.e. โNeedsโ and โWantsโ account) instead of your salary amount. Consequently, it starts to adapt to live within that amount instead of your complete salary ๐คฏ
To learn more about personal finance, budgeting and long-term investing, follow @financewithraji on Instagram.
2 comments
Wow incredible info. Nice work.
Thank you Hamad! ๐