Organise your money in two simple steps (maybe three)

I always love it when a client comes to me that has read a book regarding money and it has them splitting percentages of income into six different accounts.  Unless you want to spend half your day transferring between accounts on internet banking – I am going to suggest a simple solution to multiple accounts set up.

If you know where you money is going right now that is where we can start (if not see my blog about sorting your expenses). This  is how you live now, so of course, this is our starting point.

Now, there might be a temptation to wallow in shame or judgement, or to tell yourself off and feel bad about how you are spending. STOP IT! As I said before, you didn’t know what you didn’t know. You are now on track for something practical.

The next step is to sort your expenses into spending categories such as Basics, Discretionary and Luxuries (name them whatever – this is for you) .

Basics are the physiological needs like food and shelter, including but not limited to your home loan or rent, electricity, gas, water, rates, supermarket/market shopping.

Discretionary spending are the things that you need but could increase or reduce in quality or quantity. Yes, I’m talking clothes (you can’t do without them, but do you need as many as you have?) This category includes make-up, car upkeep, insurance, linen, homewares and so forth.

Luxuries are the wants — these are things you don’t need at all but like to have as they enhance your life. Dinners out, holidays, a hobby, holiday home — anything that takes you beyond the basic. You know what they are, and if you don’t, take a minute to play and dream.

As I have mentioned, I do not have any set rules for what goes where in this list. Private school fees might be discretionary for you and a luxury for someone else, for instance; the same goes for holidays, home improvement and dining out. What I want to achieve here is a clear idea of what you are doing, and what you believe is important with the money you earn.

Every day you make a whole lot of big and small choices about how you are spending, and therefore how you are choosing to live your life. The list you have made and the categories you have chosen are a reflection of your money values. If you are spending a heap of money on lunch when you are at work and nothing on holidays, what does that say about your desire for adventure?

Categorise your expenses

BASICS

Essential items  that you need to  live and work

DISCRETIONARY

Items that you need but are not essential to daily living

LUXURIES

Items that you want and are not essential to daily living

This then becomes your bank account.  One for all the direct debits you set up for bills / rent or home loan/ all the things that are roughly the same every month.  I personally don’t have any card access to this account.

The second account is for your variable wants and needs – can include food shopping but definitely includes dining out, clothe, you know – all the stuff you want.

Next is luxuries, and I am going out on a limb here – this does not need to be a bank account.  You could try saving in a micro investment account.  The reason I say this is a luxury is a big purchase, a holiday, paying down a big debt.  These work by rounding spending in all accounts – including credit cards.

If not this sort of account at least chose a high interest or bonus interest.  With rates so low at the moment there is little incentive in these accounts – but there is the odd special rate.

All in all simple works best.  I look at people’s accounts all day and the system that you set up and leave becomes an easy habit to keep spending in control and make sure you never pay a bill late.