Jeremiah Ajayi
We avoid discussing banking practices while discussing personal finance but it important especially knowing the right bank accounts to use.
The article is focused on those who only use two or three financial principles.
We hear about budgeting all the time. Our basic understanding of personal money is still lacking. We are continually upset by this problem and wonder why we give up on budgeting after a few months.
Nobody has gone into detail on how to set up our bank accounts correctly so they can work with our budgets. Let’s discuss the five rules with the highest priority.
When we first open our accounts, we are given the option of managing all of your finances through the current account and savings account. Things might rapidly become out of order if all of our spending goes through one account while all our savings goals go via a different account. This set up has simply encouraged us to overspend on our lifestyle, which interferes with paying our bills and achieving our financial objectives. This results in a dysfunctional budget, monthly financial stress, and new debt.
These five banking rules would help you understand the pros and cons of keeping a good financial record of your income using your bank judiciously.
- Keep your Bills in your Current Account
Your bills are the mandatory expenses you have to pay or they will quickly affect your life and credit. These bills take up a large percentage of our income and staying ahead of these bills will prevent you from getting into debt or living on your credit card. Here is a small list of Bills that are considered fixed expenses.
Housing, Utilities, Debt, Car expenses, Cell Phone, Data, Insurance, etc.
Keeping all of your impending bills separate in a current account is the greatest approach to ensure that you keep your finances organized.
As a result, you will know exactly where to move your money when you receive payment.
- Keep your Lifestyle expenses in your Current account
All of your non-bill expenses will be considered part of your lifestyle costs. These costs include things like toothpaste for the house, personal grooming, and entertainment like Netflix and the date nights. When creating a budget, it may seem challenging to account for a birthday party or a fast happy hour, but being honest about your previous spending will make it simpler. When we don’t have any money set aside in our budget for entertainment or little costs, this area generally leads to debt. The best course of action is to keep all of your excess living costs in a separate checking account. This will assist you in avoiding overspending or debt accumulation in this budgeted category.
- Keep Emergency funds in your savings account
This account allows us the assurance to respond in case of any unforeseen circumstance that tries to throw us off course financially. If you want any kind of financial security, you absolutely must have this savings account. Depending on your present financial condition, this type of account needs to be in a separate savings account and should equal 3-6 months of your expenses. Your emergency fund will serve as your own personal safety net in case you have an unanticipated loss of income due to a job loss, hospitalization, unplanned house repairs, or vehicle problems.
- Long term Goals should stay in a savings account
Like remaining married is a lifetime commitment, there are a few things we all wish to achieve that will stand the test of time. Most of these long-term objectives come with hefty price tags because they will take you longer than a year to complete. However the time span seems, these objectives must to be kept in a separate savings account so that you can track your development very clearly. This will encourage you to keep setting aside money for your long-term objectives and avoid unintentionally using it to fulfill impulsive desires. Remember that it’s crucial to give yourself enough time to reach your objectives without placing undue financial strain on your circumstances.
- Short term goals should stay in a savings account
Our semi-immediate goals, which they refer to as “short-term goals,” are the greatest to be saved for last. These are somewhat urgent since you will be saving for them over the course of the upcoming year. Vacations, Gadget upgrades, or even a luxury purchase can be considered short-term ambitions. This can even function as a sinking fund where you save aside money for any impending costs, such as auto maintenance or a birthday celebration.
Instead of putting these costs on your credit card and paying for them after we’ve had fun, let’s focus on setting up a savings account specifically for our wants.
Once you see how much you have saved you will have tricked yourself out of getting into debt and are able to save for your experiences. This is very empowering when you’re on your financial journey.
We want to see progress in our finances and have some fun in the sun without getting into debt.
Your everyday life as a salary earner, business owner, or investor would be great if these guidelines are well-followed; there would be less debt and credit card funding, but your income would be budgeted and would last your quality of living, as the case may be.
