March 23rd 2016
One of the best strategies that I have used for over 30 years to help keep me on budget, is to divvy up my money into separate accounts. This way, I don’t have to worry throughout the month whether there will be enough to cover the bills, or how much I can afford to spend on groceries as the month winds down. This strategy has made my life so much easier and helped me achieve my financial goals.
If you’ve been following the previous blog posts, your budget should now be in place with enough money to cover your living expenses, as well as enough to save towards your goals. If all of your pay goes into one account and you manage all of your expenses from this one account, the budget process can become confusing and sometimes overwhelming. Having separate accounts to manage your income and expenses is a great way to help keep you on track.
First you can start by adding up all of your fixed expenses like housing costs, utilities, insurance, etc. and divide by 2 (if you get paid bi-weekly). Deposit this amount into a chequing account and pay all of your fixed expenses from this account, either through EFT (electronic funds transfer) or online bill payments. Ask your credit union to limit the access to this account through a debit card so you are not tempted to dip into these funds.
Next, add up all of your cash expenses like groceries, entertainment, fuel for the car, etc. and divide by 2. It’s a good idea to deposit this amount into a separate savings account which you can access with a debit card. Try and stick within the allotted amounts that you have set aside for these expenses and you’ll have food in your belly and gas in your car until your next pay.
For more sporadic expenses such as car and house maintenance, emergency funds, Christmas, and clothing, you will need to do some calculating to determine how much you need to set aside and the timing of the expenses. Funds for these expenses can be deposited into a higher interest savings account, easily transferable to your debit card as the need arises.
Finally, the funds that you wish to save can be deposited directly into an interest paying savings account such as a Tax-Free Savings Account (TFSA), RRSP or other investment account.
When setting up these accounts, ask that your debit card be programmed only for the savings account that is for groceries, entertainment, etc. You won’t need debit card access to the other accounts set up specifically for your fixed expenses or savings, and this ensures that you won’t mistakenly spend money from the wrong account, or be tempted to withdraw from these funds.
You will likely need to make periodic changes to the allocated amounts when changes in expenses or income arise. You should review this overall plan at least annually and tweak the amounts going to various accounts, making sure you are still on track.
If you need assistance with setting this up, please let us help you with the process. At Member Savings, you can have multiple sub-accounts under one main account number. Your pay can be divided into these sub-accounts and easily managed online or with our mobile banking app.
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Written by Betty Anne Flynn