The Bank Accounts system
This is a system to automate your money as much as possible. It takes routine thought out of the everyday financial choices you make, which removes emotion from your decisions; when you’re in a distressed position you make decisions out of desperation, rather than opportunity.
The system is to have all your regular monthly bills and standing orders coming out of one account, the one into which your salary is paid – your bills account. One of those payments each week, on a Wednesday, is into your personal spending account – what I call your WAM account (walkabout money). Your WAM account pays for all your variable spending, everything from fuel to haircuts to coffee to eating out. This is the money you have to do what you want with for the week, but it’s finite – DON’T dip into your bills account for more if you run out.
It’s NOT a budget – it’s an allowance. It’s not about disallowing you to spend on what you want and need; it’s about controlling it.
For a couple, the system when set up looks like this:
Setting your WAM allowance
When you start, go through every single item on your direct debit/standing orders list, and ask yourself three questions on each:
- Do I need this?
- Do I want this?
- Can I get the same experience cheaper?
For example, maybe you have a gym membership you don’t use; or if you want to keep it, could you find a cheaper gym?
To come up with your weekly WAM allowance, write down all the things you spend in a typical month. Add the costs up and divide it by four, and that’s the level of the standing order to your WAM account each Wednesday.
Now, if you want to buy something more expensive that costs more than your weekly allowance, you save your allowance until you have enough to pay for it – don’t take out more money from your bills account!! If you don’t have enough money, you need to wait until you’ve saved enough. This way you have control of your money, with boundaries that stop you ever overstretching: if you can’t afford it, you’ll have to wait until the following Wednesday.
Why Wednesday? Most people spend most of their money at the weekends, so this way, if you spend it all, you only have the Monday and Tuesday to get through before your next allowance. It’s pretty easy to go a couple of days without needing to spend much, so psychologically again it becomes easier to stay within your boundaries.
Any money in your bills account which is not required to pay your monthly outgoings is simply accruing as your savings. Because you’re never using a debit card on this account or touching your money, you’ll just be able to watch it grow over time.
When it comes to debt, most people talk about facts and figures, but we’re emotional beings and that influences what we do. Get organised, put some WAM in your life, and you’ll regain control over your finances.