Welcome (back) to our Six Stones series. Our financial adviser, Jordan, is sharing as many tips, ideas and advice for people going through a divorce as a humble blog will allow. He’s staying away from specific financial advice – it’s all general advice over here, be sure to get personal financial advice before doing anything – but we hope you find some useful information in here as you navigate through/out of your divorce.
Our last (quite a) few posts were all about the background to budgeting, about defining your ‘Now’ – and setting yourself a new target ‘Future’.
Once that’s all done (congratulations, by the way, you’ve officially done more than 80%* of Australians when it comes to money management) then it’s the more exciting part – building the Money Management that will actually help you charge into your new Future.
The next one in our 3 B’s is Banking.
(*Completely made up statistic. )
Bank Accounts Have Feelings Too
Well, they don’t, of course.
But we do. And often, we have feelings about our bank accounts.
We particularly bring our feelings and experiences to how we feel about the way we bank.
Now, very few people actually think about how they bank. It’s just done, on autopilot.
So it’s worth taking a few moments to examine why you bank the way you do – how we got here, and what we need to do about it.
Why Do You Have Those Accounts?
This is a question we ask most of our clients.
Why do you have those accounts?
Another question – and a big one:
Who taught you how to bank?
Normally it’s our parents that help us set up our first account and, if they’ve done well, shown us how to ‘save’ some of our income.
Maybe it was a certain bank and their ‘education’ program that landed you your first bank accounts.
Or maybe it wasn’t until you started working, and had to give them an account to pay your income into.
Either way, it’s really worth looking at your current banking structure and divining the logic in how money flows through them.
Now, I’m guessing you have – at a minimum – the following accounts:
A ‘spending’ account
A ‘saving’ account
A credit card
Some other account for some reason
Your income likely lands in your ‘spending’ account and whatever’s left – if anything – at the end of the cycle is shifted over to the ‘saving’ account.
Meanwhile the credit card is whispering to you from your bag, hinting at what it can be used to buy.
If this system works for you – in that it’s helping you feel in control of your finances, and making it more likely you’ll achieve the financial life you desire, then great!
If not, I’d like to suggest an alternative.
Our View on Banking
We’ve talked, at length, about categorising your expenses between Needs, Wants and Worries.
We advocate setting up your banking to help you continue to do so into the future.
By setting things up well up front, then automating as many parts of your cashflow process as possible, you increase your chances of success dramatically.
We’ll talk about how you might want to set up your accounts soon, but first off – what is ‘cashflow’?
It is simply the flow of money into, around and out of your life.
For starters, you have income coming in – be it from work, maintenance, child support, investments or any other source of income.
This then ‘flows’ out – to cover your Needs like the mortgage or debt repayments or food.
You can also spend it on your Wants – that new car loan, shiny shoes or fetching hat, Bali with mates – anything that’s an optional expense.
And then – if you’re like most people – whatever’s left goes to something called ‘savings’.
Which is then pillaged about 48 hours before pay day.
Consciously controlling this cycle is how you change your life.
So, I’m very pleased to say there is a better way.
Budgeting Without a Budget
This is a good point to talk about our Budgeting Without a Budget approach.
We’ve already talked about what a pain the traditional way of budgeting is. So I’m not going to suggest you start keeping one now.
But we need to have some way of allocating all that sweet income you have coming in, or else it’ll just get frittered away (potentially on actual fritters).
So, what’s the answer?
Not just a section in the mathematical textbook from high school, ratios are the key to efficiently and effectively allocating your money.
They also give you a really simple framework for any income you receive in the future.
Bonus at work? Drop the ratios on it.
Cheeky windfall? Drop the ratios on it.
We’ve talked about our ratios before, but in an Ideal world, I’d like to see:
60% of your income going towards your Needs;
20% going towards your Wants;
20% going towards your Worries.
Our next post is going to show you how you can set up your banking to take care of this for you.