Do you know where your money goes after arriving in your bank account each month?
Money management and financial literacy is something that not only business owner but in fact everyone should acquire. The sad truth is we haven’t gotten any education about money at school besides counting coins and exchanging them for apples.
Lots of people might not want to deal with the topic because they just want to enjoy life and not always think about if they can afford certain things, but if you want to reach your goals you have to learn how money works and how to handle your personal finances.
This might seem like a boring topic but it actually requires very little effort once you created the system.
In todays blog post I want to share some budgeting tips and show you how I automated my money.
Before getting started I want to quickly explain my current setup.
I personally have three bank accounts and for the purpose of this post I will just name them as following:
1. Account A – Checking & Saving
This is my primary account that receives my current salary and is divided into two sub accounts: “Girokonto” & “Tagesgeldkonto”, basically my “checking account” & “instant access savings account”. The Girokonto is the central hub from where all my transactions take place. All my fixed expenses such as rent and phone bills are deducted from this account. And my Tagesgeldkonto functions as my and savings & emergency account. The emergency party is for “rainy” days and is measured in days. Basically how many days I can survive without receiving an income. The savings part is for everything that brings me closer to my goal. If you need for instance 5000$ to get started with your business, this is the place where you save it up.
2. Account B – Daily Budget
This is my account that I use for budgeting my daily expenses. Basically everything from food, grocery shopping, online shopping, fun etc. I choose to have an extra account (Number26) for that because I have noticed that I tend to spend more money when I was using my Girokonto, because there was more room to play around with and waste money.
3. Account C – Investing
This is my Investment account. I choose to have a separate account for this because some accounts have better conditions when it comes to investing stocks. This account is basically my “play” money. In order to understand how money works, you need to learn how to invest. This is really not an easy one for many people but you have to spend money in order to make money. You have to understand that losing money is part of winning because you will gain experience during the process which will last you forever.
Alright, let’s take action. In the following I will explain how I budget and organize my money and create an automated process between all those accounts.
Step 1: Calculate your fixed costs
Before setting up the system you have to know how high your fixed costs are per months. Fixed costs is everything that is not changing on a frequent basis such as rent, electricity, transportation, internet, etc.. Once you have this number deduct it from your salary.
Step 2: How much do you want to save?
After knowing how much is left from your salary, you need to think about how much you want to save each month. Of course this amount should be something realistic. That means if you have 800$ left, then saving 700$ makes no sense, because you probably cannot survive on 100$ a month (depending on where you live). The saving amount also includes the emergency fund, but once the emergency fund is reached, everything that comes afterwards is basically your saving.
Step 3: Calculate your daily budget
Take the amount that is left after deducting the savings and see if you can survive with less. For instance: you have 600$ left and know that you can survive easily with 500$. Take the 500$ and divide it by 31 (days a month) and you will get 16.13$ a day. This is your target daily budget. The 100$ that is then left, goes into your investing account, your “play” money.
Step 4: Automate
Ok, after you got all the numbers, it is time to set up all the automated transactions. This should be supported by all banks.
- After receiving the salary transfer the saving amount to your savings account. if you know that your salary is coming on the 29th, then set up the transactions for 2 days later to have some buffer in case the salary doesn’t come on the 29th because it’s the weekend or national holiday where banks are not operating.
- Transfer money to your daily budget account. I personally use Number26 for my daily expenses because all transactions are recorded and I know exactly what I spent my money on. Setup transactions on a weekly basis, so you lower the risk of going over your budget (e.g. 1 week : 16.13$ x 7 = 113$ per week. )
- The last step is to create a transaction to your investment account. This is money that you can spend on stocks or other investments and shouldn’t feel bad when losing it.
Now you have all systems in place and there are only two things you need to do from now: not getting over your budget and finding great investment opportunities.