Saving can be difficult, but the biggest hurdle towards reaching your financial goals is approaching saving money in a haphazard way. A measured, thought-out saving plan is required in order to not only reach your financial goals, but to do so as quickly, and as safely, as possible. In this article we are going to discuss a simple savings plan which will help you to organize your savings in a much more effective way. There are 5 simple steps involved:
Necessities Vs Luxuries: As with many savings techniques, the 4 accounts system involves first creating two lists. One list is for everything you need. These are the things you cannot live without. Rent, mortgage payments, energy bills, debt payments, travel expenses, and food. You need all of these, you have to pay your bills, you have to pay your debts, you have to be able to get to and from your work, and you have to eat. Tally everything up on a monthly basis. Take this figure away from your monthly income, and you will have a good idea of what kind of savings you can deposit in your accounts each month. On the second list, write down all of your luxuries – everything you don’t need. This will then let you see what you could remove from your monthly luxury spending to help you reach your saving goals. Be honest with yourself, and try to be as strict as you can. You’ll then be left with the luxuries you absolutely cannot live without and how much money you will need to put towards them each month.
Create Four Accounts: The next step is to create four separate bank accounts. Each one serves a separate function. The first account is for your necessities – all the money you need to meet your monthly financial commitments. The second account we will label “general savings”, and the third we will label “special occasions”. The last account we will label “luxuries”. By categorizing your savings and splitting up your bank accounts, you will have a much better idea of where you stand financially, and how much money is available for specific needs.
Start Saving: Now, when your pay cheque comes in, immediately transfer all the money required for your necessities list into the bank account of the same name. This money cannot be touched, it is there to help you live and meet your financial commitments. Once you have done this, take the money required for the luxuries you could not do without and put this into the “luxuries” account. Of the money you have left, take 5% of it, and place this into the luxuries account to give you some wiggle room. This psychology takes the strain away, knowing that there is a little left over for another luxury purchase should you want it. Now, split the remaining money and put two thirds of it into your general savings account, and one third into your special occasions account. At the end of the month, take any luxury money left over and place this into your general savings account.
With this method you can see exactly where your expenditure goes, and, with internet banking, keep a constant eye on your finance levels. By the end of the year hopefully you will have a decent amount of money saved, and enough in your special occasions account to pay for birthdays and the holiday season without having to constantly raid your other accounts.