A few days ago, my colleague Clive Thompson wrote about the 3 account system which we use at Serenity Financial Planning. The whole point of this, is to keep things simple, easy to handle, easy to understand and above all, easy to make progress with.
As Clive pointed out, yes there are many hi-tech apps out there, but here are a some hidden benefits of our system...
Firstly, when you are truly aware of how your finances work, the easiest way to improve your budget happens first - control of spending! Imagine having to consciously be aware or write down where you are against your own mini-budget. Check in every day and do it manually, and soon, that hidden conscience will start to control your spending habits more and more. The odd £10 here and there suddenly stops being spent, and the money fairy no longer helps herself to your hard earned cash.
Secondly, and here is the fun bit, I have found this method to be of huge benefit to couples, who, over the past have dedicated all their time and energy to those around them (typically their children). Every available resource - be it time or money seems to be absorbed, and the very thing which created the beautiful family unit - the couples' love for each others company seems to be a long way down the agenda.
The human, life planning related step in the three account system, is to split what is ever left at the end of the month (not the reserve account), but the amount which is left in the spending account. Save (or use to pay off debt) 75% of what is left (remember, this is surplus money). The reason why I say 75% is to make sure that there is some reward for being frugal. If we do not reward ourselves, we quickly lose motivation.
The remaining 25% HAS to be spent during the next month on an experience together. If the residue is £20, then you have £5 to spend together, which may be a coffee on the beach, or even just a bottle of water and a car park fee. On the flip side, if the residue is £1000, then £250 will get you a decent night out! The cost of the event is not the issue here (as long as you spend the budget). What is important is that dedicated time together, and there is every chance that the £5 date will be far more memorable than the £250 one. In no time, not only will your finances be far more robust, but your relationship will have become immeasurably stronger.
This is the very point where financial planning meets life planning. An understanding of what is deeply important to you (relationships, family, time together, sand between the toes, love etc), coupled with practical support and suggestions to enable those aspirations to happen, and appreciate every single one which comes along, when it comes along.
Financial Life Planning is not about ticking off a millionaire's bucket list, it is about appreciating the values, feelings and emotions of everything, so that we feel truly rich - irrespective of what is in any of your three accounts.
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!