“I’d love to go travelling for a few years,” confessed my client, “but I just don’t have the money to spare.”
This last bit made me perk up. I probed a little further, and it turned out that she had this idea in the back of her head, that better-off people simply have money left over. When she thought about it, she admitted that it didn’t make a lot of sense.
I agree. On the whole, I don’t think there are many people – apart from the super-rich – who actually have money “to spare”. In fact, I’m fairly certain that if I were to do a quick poll of when’s the last time you had money left over at the end of the month, you and almost everyone would probably say: “That doesn’t really happen.”
If you’re one of the rare exceptions to this, congratulations! But even in that case, I’d wager that you’d have more money to either save or invest into your dreams if you didn’t pay for everything else first and simply took what was left. And that’s my point here: Money is energy.
Think back to the money you existed on as a student, or when you got your first job. Chances are you’re earning more these days. However, does it feel like you have buckets of cash? Probably not.
The reasons for this phenomenon are manifold. Generally speaking, we adjust our lifestyles to our income without even realising it. Once our available money increases, so does our mindset and subconsiously, our needs as well.
What this means is that you need to come up with a better system if you’d like to have money “to spare”. Fortunately, I’ve got you covered there!
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The one-pot philosophy
You may argue that you can always budget and divide up your income – necessities, savings, gifts, play money, the way you’ve seen me suggest it a number of times if you’ve been following me for a while. Maybe you’ve even tried this method and found that you didn’t stick with your budget.
Before you feel like a failure, let me tell you a story. Imagine you cook a meal – say, a stew? – for a family of five. You divide out the food and tell each of them: “This bowl, that’s your food. Look at it and remember it well.” And then you take the bowls and one by one empty them into a big pot. Each person gets a spoon, they gather around the pot and start eating.
And then you get cross when they don’t “remember” their parts and all start eating whatever hits their spoon first.
It simply can’t work that way, can it? Then why do you expect it to work with your money? If your salary sits in just one account, then all your budgeting won’t help; you’ll keep using money for other purposes than what you’ve budgeted for, and you’ll definitely never have anything left over to save or use for your passions.
Money to spare: Divide and conquer
The best thing to do is to create separate accounts for each purpose. With most banks in the developed world, this is free. I have all my accounts in my mobile banking app at one glance; other banks offer online banking or phone banking. It’s a little hassle to set up all the different accounts, but it’s a necessary step if you’re serious about managing your money.
Some budgets don’t need an account of their own after all, for example your rent or mortgage. My monthly spending money gets withdrawn in cash at the beginning of each month, so no account is needed for that either.
See what works for you and don’t be shy to talk to a bank advisor. If they know their business at all, they’ll congratulate you on being so well-organised. Once your accounts are set up, you can either transfer the necessary amounts each month when your salary comes in, or – if your income is the same each month – you can even set up standing orders for things like the rent.
I can’t fully explain why it works, but once the money is gone from your main current account, it’s far less likely for you to mess up your budget and use money for an expense it wasn’t allocated to.
Try accounts for necessities (rent, bills, food, haircut – ca. 60% of your income), play (ca. 5%), giving (5-10%), education/coaching/workshops (10%), saving (10%) and saving for spending (5-10%). You’ll gain peace of mind as well as funds for the things you love.