If you've got a system, you can usually get to an end result much more efficiently, can't you? I know that if we have systems in our business, things get done, whereas if we just go about things with a haphazard fashion, things will get forgotten, and we'd be far less effective in our approach. And your money is no different to that.
To manage your money better, you need to split your earnings into different accounts, which help to cover everything from your day-to-day expenses, through to your long term goals.
How do you deal with the money when it comes in each month to get the biggest bang for your buck? We would recommend creating a simple money management method.
The method we employ is created by setting up a number of different accounts, so that when you get paid or whether you draw the money out of your business, if you run your own company, you could divert it off into different areas that deliver you the best results possible.
So, what are those different areas? The first is a long-term account. A long term account is the money that you're going to use to generate you an income in retirement. Typically, that's going to be a pension, which is essentially most tax efficient way of getting to retirement.
We then also need a medium-term account. A medium-term account is something where you can still get your money working harder for you, but that you can still access, when you need it. For example, you may need to pay for your children’s education or move house.
Next is the savings for specifics account, which might be an account for cars, holidays or home improvements. It might also be an account for any tax or large bills you pay on an annual basis. By diverting a pre-set monthly amount will mean that you don’t overspend and will have enough to achieve what you set out to do.
The next account is probably my favourite: the play account. If you're a couple, I’d recommend an account each, but a set monthly amount that is then your money to spend on whatever you want. As an example, my wife, Caryl, goes off shopping and decides she wants to buy five pairs of shoes. It doesn't worry me, because it's coming out of her play account. Equally, if I decide I need a new bike, then if I've saved up the money in my play account- I can buy that bike. I don't have to ask for permission. I'm using that money for what I want to do with it. I love the play account. It just gives you so much more freedom with your money.
The penultimate account is the incident account. This is basically for emergencies. If the boiler breaks or the car packs up, you need to access some cash quickly, just so that you can spend money on what's needed.
Finally, you've got the essentials account: the account from where you pay your mortgage and your utility bills. Generally, this account is where your salary is paid into.