11 - Instant Financial Clarity: The Power of Two Bank Accounts

How many bank accounts do you have and use?

The minimum should be two! It is really important for your personal financial health to monitor what comes in, and what goes out. There is a really simple strategy that you can use to do this in a really short amount of time, and that is…🥁🥁 by using two bank accounts. 

Account Number 1: This is the account that your salary gets paid into each week/month, and that any Direct Debits and Standing Orders come out of. No other payments should be made from this account. Most people have between 5-15 regular payments that are set up on autopilot, such as rent and insurances (this is a good time to check for any payments that you no longer need!).

Account Number 2: This account will be for all your variable spending each month including any treats that you want. You will set up one monthly automatic payment from your first account to this one. You want to go out to dinner this weekend, then you will need enough in this account. Fancy that new pair of shoes? Yes that’s right, check this account!

But how much will I need?

You will first need to calculate how much you will need to transfer from account 1 to account 2, and you can do this by:

Step 1 - Calculate your total average monthly outgoings each month by looking at the past 6 months bank statements (more if possible).

Step 2 - From that, calculate the sum of all your monthly Direct Debits and Standing Orders (these can often be found in a separate payments area on your bank account, as well as within your ad-hoc payments).

Step 3 - Deduct the regular payments in Step 2, from your total average monthly outgoings in Step 1.

Voila, you have your average ad-hoc spend. This will be the number you can transfer each month on an automatic payment from Account 1 to Account 2. You will only use Account 2 throughout the month and if you get to the end of the month and want to go to a fancy restaurant but don’t have the money to do so? Then the answer should be “no”!

There are many other benefits of having two accounts:

• Financial safety, if you lose your card for Account 2 the impact will be limited to what you have in that account and not your primary source of funds in your main account.
• Auditing or reviewing Account 1 will be quick easy as it will not change much from month to month.
• Any unknown payments will be highly visible in Account 1.
• You can make it a game and try to increase the amount you have in account 2 at the end of each month!
• Budgeting becomes much easier to do for your ad-hoc spending.
• You can invest the extra so it makes you more money and you can achieve your financial goals sooner!
• You can prioritise saving from Account 1, before you even worry about your “spending” money each month in Account 2.

If you are wanting to build your dream life, financial clarity and health are very important. Master the basics above through automation and you will be able to budget better, save more and achieve your goals faster.

If you would like more information, get in touch at [email protected]

Always with love,

Elsa x