The multi-account method
Today we’re going to get into budgets for people who really hate the admin side of budgeting. This is a way to automate parts of the control of your spending and make certain you have money ringfenced for bills and savings before you can spend anything.
How to
For this method you need three accounts, two basic or current accounts and one instant access savings account. The first current or basic account is for bills and other automated payments. this needs to have direct debit/standing order facilities. The other basic/current account is for spending money and it needs a debit card. The instant access savings account is for keeping money ready for occasional spending - things like birthdays, household or car repairs and religious festivals. It may be useful if this is with the same bank or building society as the spending account, so you can easily transfer between them.
You’ll need to work out how much money you need to cover all your expenses and I talked about this in a previous post in this series. The difference here is how you keep track once you have the amounts worked out.
Ideally, you should get income paid into your bills account. You will need to know how much needs to stay in this account to cover your bills until next payday. I suggest you keep back a little bit more than this amount, in case any of the bills is higher than expected.
Then decide what needs to be paid into your savings account to cover the occasional costs. If this will be a consistent amount, you can set up an automated payment to the savings account. Alternatively, you can make the transfer manually on the day you get paid.
Decide how much you want to go into longer terms savings and investments and, ideally, automate these transfers too, then you can treat them like a bill.
Finally, transfer the amount you want to use for day to day living expenses into your spending account.
If you need to meet an occasional expense, transfer the relevant amount from the instant access saver to the spending account.
You’ll need to keep an eye on how much is left in your spending account throughout the month. You should also schedule some time once a week/month to go though your bank statements/online banking. That way you can be sure that there are no unexpected payments and that the amounts you have going into each account are still appropriate.
If you are extra frugal one month and have money left in your spending account on pay day, transfer the extra to the occasional expense savings account.
Let’s talk about the advantages and disadvantages of this method.
Pros and cons
The pros:
This is a low maintenance way to control spending and make sure you have enough money to cover bills and save for short term goals.
Although it’s an all digital method, this has many of the advantages of a cash budget method.
As long as you err on the side of caution each time, you can be a bit rough and ready in your calculations and still be ok. For example, if you know your phone bill is typically £17-20 then as long as you leave £21 in your bills account for it, you know you will be ok.
You are almost certainly never going to get a charge for a bounced direct debit or an unpaid bill.
While you’re out and about, it’s very easy to see at a glance if you have spare fun money this month, or if you need to tighten your belt. No need to consult your spreadsheet.
Very easy to sustain. If you’re someone who has started multiple book-keeping style budgets in the past and never kept up with them after the first couple of weeks, this willll almost certainly suit you better.
Don’t have to remember to request/keep your receipts.
The cons:
Less likely to spot a fraudulent payment quickly.
Need to be sure your automations are working correctly and come out on the right days.
Less familiar with the nitty-gritty of your spending, so less likely to spot opportunities to save money, without additional effort.
Requires multiple accounts, probably with at least two different providers.
What do you think? Would this style of spending plan work for you?
To hear more about different ways to plan and track spending, check out my podcast Squanderlust Episode 7 : Budget Pick ‘n’ Mix