A Simple System for Managing Your Money That ...REALLY Works!

How many of us can honestly say we've stuck to a budget for an extended period without feeling the strain? Not me, that's for sure!

The truth is, for most people, budgets don't work. They're like crash diets – promising short-term results but often ending in frustration and abandonment. Why? Because budgets rely on strict adherence to predetermined spending limits, which are restrictive and unsustainable.

What's the alternative?

Instead of focusing solely on restricting spending, this approach emphasizes taking control of your finances by allocating your income into different bank accounts and automating  the process. By separating your money into different accounts, each serving a specific purpose, you gain clarity and control over your financial life.  

This is exactly the system I’ve been using for over 34 years.

Step #1: Set Up Your Bank Accounts 

Before you get started, you need to set up the 'three accounts system' : This comprises a Spend account, a Bills account and a Savings account.  There are many online banks were you can set these up (without fees) and it will take you less than 20 minutes.  

Here's what it looks like:

Here's how it works:

You bank 100% of your salary plus income rental properties  goes into your Bills account. If you are self-employed this would be a fixed monthly drawing you make from your Business account  into your Bills  account.

If you are in business, you also need to be setting aside money for taxes and GST into a separate account. Do this before transferring your drawings to your Bills account.  As a rule, you should base your tax bills on the previous year (for now).

The day after your salary or drawing from business hit your Bills account, you need to set up an automatic payment to transfer 10% of this amount into your Spend account and 30% into your Savings account. This means you are left with 60% in your Bills account.  

These percentages are only a guide and yours may be different, but as a rule, if your Bills represent more than 60% of your income, you may want to review your Bills to see where you are overspending and take corrective action.   

Your Bills account will be used for things like, home loan repayments or rent, food, utilities, mobile phone, subscriptions, medical, scholl fees, rental property expenses etc.  You will also need to set up a Debit card attached to your Bills account  for convenience. 

Your Spend account is used for ‘guilt free’ spending e.g. coffees, movies, shoes, clothes, concerts, handbags, gifts, shoes etc. You will also need to set up a Debit card attached to your Spend account, for convenience 

To keep your life simple, label each one of your debit cards with a sharpie and call it 'Spend' and the other 'Bills'. or you can simply have them on your phone. 

Your Savings account let's you earn interest on your money. You can open as many savings accounts as you like and give them different names, e.g. Emergency fund, home loan deposit, holidays, children's education, wedding, etc. , but for now you will need to set up, your Emergency fund starting with $2,000 and then building this up to three to six months of living expenses. 

Remember, you need to have a SYSTEM for managing your finances. So if you don't have one, this is your solution.  Just make sure your don't F.T.I. (Fail To Implement). So, set aside some time this week and get started!

 At Tolevsky Partners, we specialise  in helping business and professionals manage their finances. If you need help with setting up this system, please make a complimentary appointment to speak with us.

This information is general in nature and does not take into account your personal financial situation. It is for educational purposes only, and does not constitute formal financial advice. You should always seek personal financial advice that is tailored to your specific needs