Car breakdowns, home renovations and other unforeseen expenses are stressful and costly. If they are not included in the budget, you will have to take out a loan and overpay.
To manage finances efficiently, writer Ben Le Fort maintains seven bank accounts. Here’s what he says about this budget planning model.
H2 Running Costs
These funds go toward day-to-day expenses and paying bills. This kind of account can be compared to an airport: the money is not there all the time, but only placed there to get to a certain destination.
A checking account does not usually earn interest, so you can only keep enough money in it to meet day-to-day financial needs and obligations.
H2 Vacation
Travelers should create a separate travel and vacation account. Determine how much you can afford to spend on your future vacation. And then plan it based on the accumulated amount. It will even be appropriate to paper here, since any trip is a variety of waste from restaurants to buying souvenirs.
Taking out a loan in order to relax is not a good idea. If the desired trip is more expensive than you can afford, then another option is worth considering.
H2 House maintenance
Own housing is expensive. It requires constant renovation – from painting the walls to replacing furniture – and new problems arise one after another.
To cover the annual cost of maintaining your house, it’s worth setting up a separate account. As a rule, it will be enough to save 1% of its purchase price.
In addition, you can save extra money to buy household items that are not basic necessities. For example, a blender or a new TV, which are probably not in your monthly budget.
H2 Car maintenance
Car maintenance is also very expensive. Insurance, repairs, gasoline and much more all add up to a large sum.
Spending such as gas, insurance, and loan payments can be included in your monthly budget. For larger and more infrequent expenses, such as repairs, oil changes, and buying a new car, it’s best to set up a separate savings account. That way, if the car suddenly breaks down, fixing it won’t be a problem.
H2 Child expenses
Toys, food, a crib, diapers, a baby seat – all these and many other costs will appear with the birth of a child. Therefore, it is worth creating a separate account for his needs.
Moreover, the older the child gets, the more costs rise. Studying at a college or university costs a lot of money. It is also better to take care of this in advance so that in the future the child can receive a good education.
- H2 Entertainment
Being an adult is not easy. When children appear in a family, it becomes difficult to find time and money for oneself. A separate account specifically designed for entertainment can help solve this problem.
You can use it to go to the movies, order takeaways, or dine at a cafe on weekends. Thus, you can afford not only what is not included in the monthly plan, but also a break from the daily hustle and bustle.
H2 Force Majeure
Typically, this account is needed for two purposes:
- To cover significant and unexpected expenses.
- To cover basic living expenses if you lose your job.
However, the first function can be performed by six other bank accounts:
- If one of the furniture breaks, the purchase of a new one can be paid for with money from the savings for the maintenance of the house.
- Car repairs will also cover a separate bill.
- For other unexpected expenses, you can use your vacation and entertainment savings.
Thus, funds in this account can be left in case of loss of work.
H3 Additional Tips
Having seven bank accounts helped the writer relieve financial stress. When the budget has already been allocated, and the money is in a specific bank account, he does not worry about whether to make a purchase.
If you want to use a similar budget allocation model, here are some tips.
- Make sure there is no monthly fee for maintaining the account. If your bank does not provide this opportunity, you can track your savings in other ways. For example, in a spreadsheet.
- Once you define a specific amount for each invoice, automate the deductions to follow your plan exactly. However, you should not resort to this method if you are not sure about your financial condition. In this case, it is better to make deductions manually.
