It’s Mike from Fabulously Broke, I hope I didn’t scare you with my insurance email the other day! It’s never a fun topic to talk about but it’s very important! Don’t worry; today’s email is a lot more simple. In fact, it’s all about simplicity! You work hard for your money and certainly have more interesting things to do on a Friday night than playing around with your homemade budget in Excel! I think you deserve a better life. And this better life starts with a simple way to manage all your money!
Day #5: Use Bucket Accounts
Have You Ever Hear of Bucket Accounting? This is probably the easiest way to manage your money that I have ever heard about. It is a simple but very smart way to deal with finance in my humble opinion. The basic idea behind it is to segregate your financial accounts in order to have a clear vision of where you stand for each of your projects. Personally, I have automated a lot of the transfers of money between my bank accounts in order to save more.
You have surely heard the phrase “Pay Yourself First“.
I think it‘s another simple but very true concept. I don‘t know if it‘s the same for everyone but it‘s very true for me. If I receive $1000, the chances of saving $200 are much better if I transfer the money initially to a savings account while awaiting my next payday and transferring what is left. For some reason, we tend to spend more when our bank account is full of money. It should come up to the same result but, at least for me, it doesn‘t.
This is why I’ve setup automatic transfers from my bank account so I can automatically save money, pay my bills, build an emergency fund and still find money to go shopping!
Here’s a Bucket Accounting Example:
The bucket design is quite simple:
- ü You receive your pay check.
- ü If possible, you ask your employer to directly deposit a part of it into your Investment account.
- ü If not possible, deposit the pay check into your Savings account.
- ü Then, set automatic transfers to each of your other accounts to meet your needs.
- ü You can also add a joint account to this example if you want to share your wealth.
This is how all my bills get paid on time without me doing anything! Since I use my rewards credit card for almost everything, I’ve made sure to have an automatic full payment every month. This is how I efficiently accumulate rewards without paying a dime in interest!
What’s The Next Thing to Do: Build Your Buckets!
After reading Day #1 email, you should already be aware of your budget. Now, it’s only a matter of opening a few more bank accounts and setting automatic transfers amongst them. The best way to do this is to open your 3-4 accounts with the same bank. A meeting with your banker or, even better, opening them online would be just fine. You can set your transfers by phone with your institution or via online banking. Try to avoid all kind of fees (Mint compares several checking and savings accounts). Here’s a great article on Canadian Bank Account Comparison (CDN only). There is also a free savings account comparative tool created for Canadian (click here to use it). The key is to find the financial institution that will offer you the best overall package. Don’t only aim for the lowest checking account fees or the highest savings account. Chances are that they won’t be offered by the same bank. Consider the overall value according to your need and the number of accounts you want to manage your money.
This step should not take you more than 60 minutes and you will be set on automatic pilot for the rest of your life! I do advise you to revise your transfers once in a while just in case there are any modifications to be made.
That was a lot more simple, wasn’t it?
The next email will be determinant in how you will succeed in controlling your cash; we will talk about your credit!
Upcoming: Day #6: Conquer Your Credit
Talk to you soon,