Monitoring your finances can be a tedious task so it’s no surprise many put this off.
Reconciling bank statements, checking credit card spending and household bills - there’s far more interesting things to do. But left unchecked and you could be wasting money or worse still, you find yourself with a problem.
Who hasn’t been amazed watching programs like The Martin Lewis Money Show or Eat Well for Less when spending habits are analysed and the savings revealed! You're left wondering how those people don't know what they're spending.
Good financial planners will help you organise your finances. At Serenity, we encourage our clients to be aware of their spending but without the pain. We give them simple systems to help them focus on what’s going out and where. A good example of this is the three account system: Bills, Spending and Reserve.
Bills - your main current account. Monthly income goes into this account and your household bills are paid out. These are the bills you have no say over like your mortgage or rent, council tax, utilities, phone, etc. Bills you must pay. You could also include a fixed amount for food shopping, annual bills like car tax, insurances and any regular savings or contributions to pensions.
Work out how much these cost come to and then transfer the surplus income to your Spending Money account.
Spending Money - a second current account. As the title implies, this is the money for personal things like clothes, treats, eating out, etc where you have some discretion over how much you spend. The only rule is that when you get to £0 you stop spending until next month!
Reserve - an instant access deposit account linked to the Bills account. This account is used to hold spare cash for annual bills or emergencies that you can get at quickly.
This account needn’t be with your bank.
Most banks and building societies offer instant access savings accounts that are linked to a current account you nominate so your money can only move in or out of the account that way. Your money is transferred using the Faster Payments Service so its quicker and safer. Moving money between your accounts should use the same system.
The three account system is ideal for couples with individual incomes as it separates joint expenditure from personal expenditure. It’s simple to set up and checking your spending is a lot easier as you’ve less to think about. It can also avoid those disputes when one partner appears to be spending more than the other!
This is a low tech solution to managing your money. However, there are plenty of hi-tech apps available to help you manage your more more effectively…
Keeping track of finances can be a tricky thing to do, especially if you have more than one account or any kind of credit or store card. Money comes in, money goes out and there is the classic saying, the more you earn the more you spend.