Use Separate Accounts For Simple Bucket Budgeting

The simplest budgeting and personal finance solutions are often the best; they're easier to stick with. Money Magazine recommends a fast way to create a simple budget: open three different accounts to separate savings, fixed expenses and "fun money".Photo by gracey.

The article says you should have your pay divided into three portions and directly deposited into a:

  • Savings account: pay yourself first
  • Transaction account 1: for regular fixed expenses
  • Transaction account 2: for leftover money that you could use as "fun" money or another backup.

By having a second transaction account, you'll be able to tell at a glance how much leftover money you have. (You could have a second savings account instead of the transaction account, so you could deal with just one bank. Rather than divide your pay, you could also instead directly deposit into one account and set up automatic transfers between your accounts.) To make this work, you'll need to plan how much should go into your savings and your fixed expenses account.

Another variation of this concept or a way to expand it is to use sub-savings accounts such as those offered by ING Direct. Many of us have multiple savings goals (a new car and a holiday, for example). To plan for those individually, you can divide your savings account into virtual accounts for each purpose.

The bucket method makes spending and saving very simple, because it divides your money into your budget categories in a very clear way. Do you use a method like this or another system?

Create a budget (and stick to it) [Money via Budgets are Sexy]


Comments

    This is precisely the method I started using about 2 weeks ago. With my financial institution I can have as many accounts as I like and they even have a (limited) choice of labels I can assign the accounts.

    Fortnightly, monthly, quarterly and annual bills can be hard to manage without multiple accounts. With the quarterly and annual ones, you are best to have accounts with a decent amount of savings interest on them because the funds are going to be sitting in there for an extended time as you add to the balances every payday..

    With a spreadsheet, you can enter in all the bills and then reverse engineer or forward engineer the fortnightly, monthly, quarterly and annual (make sure you use 26 fortnights for the annual calculation and not just 4 times quarters if you are using 2 fortnights per month and 3 months per fortnight calculations).. then you can work out exactly how much to put into each of the accounts with every fortnight's pay.

    It's not a budget though it's just three pots of money.

    The second two options are closer to budget's if projected forward. If you just enter expenses paid it's merely a P&L statement at the end of each year.

      And if, as the article suggests, each account costs a monthly fee. It's a loss leading method of storing cash at that.

    Online saver type accounts are good for this, as they generally don't have account keeping fees.

    And if you find it a hassle having accounts across different banks, or just want to get some more information on your budget, cashflow, etc, try ANZ Money Manager (free for anyone to use, even if you don't bank with ANZ).

    It aggregates all your accounts together, and lets you monitor cashflow, set budgets (and email alerts), and a bunch of other cool stuff.

    Yup, I don't pay any monthly fees on my accounts.

    If all you do is work out your ins and outs without actually using that information to plan goals and so forth, then it is still handy because you are a lot less stress free. Maybe it's just me not having enough money to live on a single income with a mortgage and an adult dependant.. but without doing this, things get very stressy whenever I get bills..

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