Today, I want to share with you just a simple money management tactic that I share with a lot of high net worth clients who find it incredibly useful and can really help them turn around their relationship with money.
I was running a workshop last night for a group of about 30 individuals who were really interested in understanding how to better manage their money. In particular, some of these people had the capacity to earn fantastic money, some of them were earning great money but they couldn’t understand why they were always having that feeling of barely living within their means.
The strategy that I share with a lot of people and which I’ve certainly adopted for the last few years is what I call the Gorilla Rule of Three. What this actually involves is you setting up three bank accounts with three separate institutions. Now, the main bank account which effectively forms your primary saving account, is often held as an offset account or an account tied to your home loan which effectively means that any money that goes into that reduces the balance of your loan and, therefore, saves you interest.
My view is that all income that comes in should go into that bank account and on a weekly basis an amount gets transferred into each of the other two bank accounts. One of those bank accounts is what I call your day-to-day spending account. That is literally for all discretionary spending so it would include things like your coffees, your movies, your dining out. The way that it works is on a weekly basis an amount gets transferred into that account and when it runs out, it runs out.
So, say, for example, you pay yourself every Friday. If come Monday that bank account is empty, that’s just too bad. What it will teach you is how to very quickly start to understand whether or not you’re living within your means.
The third bank account that I mentioned which, again, should be with a different bank is an amount that you transfer, again, on a weekly basis on the same day as the other transfer and effectively represents money for bills. So this is things like your insurances, your utilities, things that you know that you’re going to incur on a regular basis that you need to put money aside for. That way when bills come in to play, you’re never shocked, you’re never taken off-balance and you’re not scrounging around for the money.
The purpose of having those three bank accounts reside in separate banks is more to do with the fact that it’s out of sight, out of mind. I’ve done this method of money management for years. Whenever I do happen to log in to my primary loan account for my home loan, I’m always shocked at how much my offset account has actually grown because it’s been subconscious.
One of the hardest disciplines is getting your head around what should you be living off every week and what are you actually living off. The majority of Australians find that they have to top up and live beyond their means in order to maintain a certain lifestyle.
I hope you found this tip really useful. Obviously, there’s lots of variations on that and you can set up multiple accounts for lots of things like travel. If you’re starting out and you just really want to understand how to get basic money management into place in your life without agonizing over strict budgets then that’s certainly a very simple way to do it.
If you’ve got any comments, I’d love you to leave them below. I hope you found it useful and I look forward to connecting next time.