I did not realize the impact of managing my money until my girlfriend told me about how this strategy affected her savings rate, drastically. By applying the steps below, we bought our Scotland flights and accommodations, along with flights for our 2nd trip this year. All while just starting a full-time job for 2 months.
Here's a bit on how to set this up so that you can do the same:
Quick Intro On The Methodology
I had been using an online bank for several years now. And I have integrated a few methods of how to streamline the process of managing money. I have learned this from various mentors and book recommendations over the years. Namely: Profit First and Simple Numbers
They've helped me save up money (for trips, vacation, time off, buying anything) and live lean while building confidence in managing my own money.
Profit First changed the way I thought about profit. From it being:
Income - Expenses = Profit
Income - Profit = Expenses
I think it is very important for one to manage their money themselves. It allows you to be self-sufficient, not rely on accountants or family to tell you how you are doing with your money. Just a quick glance in your bank account allows you to visually see how much you have allocated for each category you want to save money for.
Ex: Short term trips, long term savings, rent money, Emergency fund...
All these are different bank accounts under your same bank login. I personally use Tangerine here in Canada. I am certain you are able to create several accounts wherever you are by now.
Here's a simple breakdown of how I have it set up at the moment:
Money comes in: One Account
INCOME: All income
This can be from selling online products or services, or from my salary. These all come into the same bank account that I call INCOME. All money that comes in gets deposited here.
Move Money Around: Multiple Accounts
OPEX: Operating Expenses - Money for bills, etc
For automatic billing from my checking account, I have a separate account called OPEX.
Profit First: Paying Yourself First
Taken from the book Profit First, this account is where I send over 1 to 10% of what income that I receive. No matter what happens. I must always pay myself first.
While working for myself, I would always take 30% of what I made and put it into this account just for safe measure. NO MONEY GOES OUT of this account unless it's to pay for the tax bill. This money doesn't belong to me, it belongs to the government.
Future Savings: Short Term, Long Term, 3 Months Rent...
As many other savings accounts you would like to add, add them here. And allocate a % of your income to be directly inserted here.
Essential Tool: Automatic Savings Plans [ASP]
With Tangerine, I was able to automate all of this thanks to the ASP. These are little rules that you set up to allocate % of income or of an account at any recurring time intervals.
- Move 130$ per week into Scotland trip.
- Move 10% of any income to personal savings.
- Move 200$ per month into Long Term savings.
Setting these up is a GAMECHANGER if you haven't used these tools before.
All the above setup is to help you have control over your money and your future. Plus, you won't have to think about it. This is all being automated. And over time, with your spending, you will barely notice your money is being split across multiple bank accounts. It's just how your money lives. Going from one account to the other.
Bit by bit, your money starts to accumulate.
And over time, it ends up being so much that when you finally are ready to book a trip to Scotland, you already have the money for booking flights ready to go.
What are some money managing tips you'd share?