4 WAYS TO CLEAN UP YOUR BANKING STRUCTURE

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30 APRIL 2019

You’ve completed the first stage into getting your financial situation in order by making a budget. Now it’s time to organise your banking structure to ensure the right amount of funds is being allocated according to your needs. Here are some tips on how you go about doing this.

STEP 1 - THE THREE BUCKETS
You’ve already completed your budget by now, so you’d know which expenses are mandatory and what aren’t. In the financial world, we’d like to categorise expenses into three buckets – one for fixed costs, one for savings and the other for splurge (aka the ‘treat yourself’ fund).  To help build an effective budget, it’s a good idea to allocate each expense into one of these buckets.

Here is an example of where different types of expenses could be categorised under:

  • Fixed costs account – this account funds the costs you need to live comfortably. These include utility bills, rent, mortgage, groceries, medical care, vehicle, education etc.

  • Splurge account – this ‘treat yourself’ account is designated to fund expenses that fund unessential things. These could include going out for dinner, buying a new outfit, getting a coffee etc.

  • Savings account – this account houses the funds you put away to serve a particular purpose for you, whether it be to make a house deposit, safe guarding against unforeseen expenses or to become financially independent.

STEP 2 - ORGANISE BANK ACCOUNTS  
Organise your bank accounts accordingly by taking a leaf out of step 1’s book…

STEP 3 – IT’S ALL ABOUT AUTO
There’s nothing more frustrating when one week, you have zero bills to pay and the next you’ve got stacks! This could leave you without enough funds to pop into your savings account. To help manage this, allocate your income into the one account (such as your ‘fixed costs’ account) then set automatic transfers into your other accounts. If you’re trying to decide how much money you’d like to designate to each account, try the 60/20/20 rule. This means 60% of your income stays in your fixed costs account, another 20% goes into savings and the other 20% goes into your splurge account. Of course, you can always tweak this split to suit your needs.

STEP 4 – IT’S ALL ABOUT AUTO VERSION 2
While we’re on the topic of automation, avoid paying late bill fee’s by setting up automatic bill payments from the account your income goes into. A hot tip is to set up automatic bill payments on the days you get paid, so you know there will be funds in your account.

AND YOU’RE OFF!
Now that your budget and bank account structure are nicely organised, you’re off to a great start in smashing your financial goals. WHOOHOO!

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.