Leaders of the Free World

You’ve either stumbled across this article from the archives or been directed from [Your Name Here] Inc. In this article we’re going to touch on budgeting and setting up an automated banking system. This is one of my less cynical rants and is more of a ‘helpful guide’, who would have thought?!

Ever since as early as late high school, you got a job and earned some money, passed your driving exam and finally had the freedom you’ve craved! Freedom enough to go out and try and get the newest hottest car you’d be allowed a personal loan for.

So there you have it, you were free from the time you passed your driving exam to the time you ‘bought’ your first car (with a hefty personal loan). If you didn’t follow the crowd, and bought rust buckets to drive around for your first couple of years of driving (or had a silver spoon from your parents) then you managed to avoid the trap.

What trap? You knew what you were getting yourself into. You learned when you were about 8 years old and your science teacher taught you about the water cycle; Evaporation, Condensation, Precipitation, Collection, repeat. A basic example of a repetitive cycle.

And so it begins…

What does any of this have to do with budgeting, money and getting caught in the rat race? I found that nearly everyone I knew had a hefty personal loan on a car, to drive themselves to work, to get their pay check to pay their loan on the car, which they needed to drive themselves to work, they needed to go to work to pay their loan, for the car, for work…. that was annoying. See what I’m getting at here? This mentality and way of thinking is why the world is screwed into obscene amounts of debt. It’s ok to NOT keep up with the Jones’s, your TV is fine as it is, and you don’t need a new flat screen. Imagine if everyone lived within their means, focused on what was really important and enjoyed the simpler things in life?

The Budget

Before you cringe at the term ‘budget’, it’s your money, no one is making you do this, but you’ll be surprised what you spend. Once you write down what you ‘think’ you spend your money on, you’ll wonder where the rest goes? Start by listing your expenses you’re aware of, such as;

• Mortgage Repayments
• Household Bills (Gas, electricity, water, Telephone, Council Rates etc.)
• Insurance (Car, Home, Boat, Life etc.)
• Grocery Bills
• Gas/Petrol Bills
• School Fees/Tuition
• Birthdays & Christmas Presents

As you can see from the above list, you can include whatever you like; you can go to the extremes of haircuts, toiletries, clothing etc. However much detail you include, it will give us a place to start.

In your weekly budget calculate all of your expenses in the same frequency as when you get paid.

Example:             Car Insurance = $500 per year, if you get paid weekly, $500 / 52 weeks/year = $9.60

In the example above you have to reserve $9.60 per week for your car insurance. We’ll apply this theory to the entire budget.

In my personal weekly budget I have the following categories; Credits (Gross Income), Bills (Automated direct debits), Expenses (Fuel, transport, Food), Spends (My weekly income), Savings, Trust (I put aside a few dollar a week for my younger nieces).

Now the key to all of this to make it work is to align your banking system with your budget. This isn’t hard and anyone can do it, it will however cause some people a bit of temporary pain to have to actually visit their bank! (Check the place out, chat to the tellers and steal some pens; it’s what you pay fees for.)

The Joys of Automated Banking

All banks these days allow you to set up multiple ‘sub-accounts’ within your bank account. You can choose where your ‘gross income’ goes into, and you can set up sub-accounts for your bills, spending, expenses etc. Most banks will even let you rename your accounts, so instead of having account no. 228374 you’ll be able to have your ‘bills’ account. Below is an example of how I have my accounts structured;

Automated Banking Structure

My gross income goes into my ‘credits’ account on a Wednesday afternoon from my employer (hopefully not for much longer!), on a Thursday morning I get to witness the glory of automation, and the money is distributed (you can set up automatic transfers) to my sub-accounts, giving me my weekly pocket money to spend, knowing that I’ve already put all my money aside for bills, expenses and savings. Going even further, to complete the ‘system’, a debit card is linked to the ‘spends account’ so your ATM card is linked to your pocket money account. You know that you have $150 (you define the amount) to spend for that week and once you’ve spent it, you’re done. If you ‘borrow’ from your savings account or bills accounts, you’re going to come up short at some point. This system is 100% better than seeing your ‘gross income’ in your account, going out with your mates on a Friday night, getting drunk and withdrawing $1000 to put on a bar tab and go to the casino!

Once you have your automated system up and running, after a while you’ll see your savings balance swell, be able to pay your bills comfortably and enjoy yourself spending your weekly pocket money. But hopefully at some point you’ll think to yourself, is this it? You’re saving $100 per week, that’s $5,000 per year, which if you work for the next 40 years is $200,000. Congratulations! That’s no mean feat, not many people would have the discipline. But surely this will make you realise that after 40 years you’ll only have saved enough money to by a modest home in the suburbs?

Is working hard and saving your pennies the answer?