Investing in property can be great for building wealth, but if you don’t have a handle on how much cash is coming in and out of your household then you’re dead in the water before you’ve even started.
One of the best ways I’ve personally found to keeping control of the finances at home is by maintaining multiple bank accounts, each with their own primary use to keep control of our spending patterns.
Here’s how it works…
1. The Everyday Spender
The first account is the main bank account for utilities and general spending and is something that we use and maintain on a daily basis.
It includes things like electricity bills, water bills, general food shopping and all those mundane things that have to happen week to week.
2. The Personal Spends
The second account goes to what we call discretionary spending.
My wife and I, even though we all have joint accounts as a family, also have separate bank accounts for our own spending.
We give ourselves a budget, allocate the funds each month from our income and that is ours to spend as we please.
This is a great way to feel like we both have control over what we’re spending our own money on but without our spending levels getting out of control.
Once the money is in there, neither of us feel like we’re treading on each other’s toes when we go out and spend on things like going to the movies or buying some new shoes or whatever.
The next two accounts are actually held in different banks – accounts that we won’t necessarily view all the time as I don’t want or need to know (or be tempted by) the amount of money sitting in there.
3. The Leisure Account
This third account is for travel and leisure. Now this is personal to us – we love to travel and do so regularly, but it may be different for you. The point is, this is an important activity for us but it takes some discipline to get enough money together to make it happen – it doesn’t happen overnight.
It works like this: If we go on holidays and it costs us $5,000 or $10,000 per year for example, we might budget for that month to month.
The money goes into the Leisure account and it keeps accruing until we have enough for our next trip. That way we don’t get to the end of the year and find that we have no money to go on holidays with. It’s also surprising how quickly small amounts can get bigger over time.
4. The Investment Account
The fourth account, of course, is the key account assigned to investing.
Anything that’s left over from the daily activities or small discretionary spends or going away on holiday to give ourselves a break, goes into the investment account. This includes anything like large windfalls or a bonus from your own income that you might receive on a quarterly or yearly basis.
You might look at this account and say, “Okay, if we can save $50,000, then that might be enough to be enough to give us a leg up into our first deposit for a property,”
Or, if you have $5,000 to $10,000 left over each year, then that might be enough to say, “Okay. We could afford to invest in a property on an ongoing basis because there is excess money in the account.”
This is a good way to maintain whether you have enough funds to make a new investment or make another investment on top of what you already have.
Maintaining these accounts can be a great way to monitor whether you’re actually growing your assets as a household outside of your everyday spending.
It’s also a great way to manage your money without getting too complicated because if it’s too complex, we’re not going to do it.
So if you want to maintain a really good understanding and foothold on the amount of money that’s coming in and out of your household, make sure you’re keeping an eye on these four key accounts.