There is a reason that companies have a dedicated team of people keeping track of every single expense, earning and investment made. They are making sure that every hard-earned penny of company asset is spent in the best way possible!
So why not apply the same focus to my personal accounts?
When I started I thought that work and dedication required, would ultimately lead to failure.
However, as we've operated a budget, albeit loosely, for many years it was easy to find out what was coming in and out. With our budget in reasonable shape, we are mostly have less going out each month than coming in.
Our budget is fairly minimal, expenses are split into three categories and we assign a percentage to each -
- Needs: 50%
- Wants: 30%
- Savings: 20%
Things that fall into the "needs" category include: mortgage payments, utilities, food, fuel, council tax, tv license and insurances.
In the "wants" category we have things like: eating out, Sky TV, Netflix, Apple Music, fitness memberships, clothes shopping and holidays.
Under "savings" is the following: emergency fund, long-term investments and occasionally short-term big ticket items such as a long-haul holiday.
What will change?
Inline with our budget we will have dedicated bank accounts for category of expense and just like the accounting department of a company, each account is dedicated to their purpose and nothing else.
- Checking account: income comes into this account
- Bills account: all of the needs come out of this account
- Savings account(s): always kept separate from spending
Each month as income comes into the checking account, automated transactions will move the required amounts to the needs and savings accounts. The amount left in the checking account is open to spend.
With our accounts in order, it is now time to focus on our assets. From today we are considering our assets to be like the departments of a company.
We will have three departments:
- Property department
- Savings department
- Investments department
The property department is our most costly department in our company, having recently moved into a new home. It is also our largest asset.
The savings department is where we are saving up our buffer. The initial goal is to have three months income, but over time we would like to grow this to six months. Savings are held in tax free ISA accounts. This department provides low returns per equity invested.
The investment department is where we put our money to work. We have small portfolio of shares and funds, which we invest in each month. We normally expect this department to provide the best returns per equity invested.
We have decided that we will review our numbers on a quarterly basis. Our first review is scheduled for October 31st, when we will go through the budget to see if it needs adjusting and to confirm our investments are on track.