All it requires is a call to your personal banker
Despite the economy going downhill, there is enough evidence of a surge in impulse spending once the lockdown is over. People who have spent months in isolation are predicted to splurge at the first available opportunity. This, however, isn’t about post-isolation impulse spending. You may very well be justified in splurging on that latest iPhone or an expensive watch or indeed a small fortune on a car but if this spending is part of a larger pattern of buying things impulsively, then it is another matter altogether. There is, however, an extremely easy way of controlling how you spend. And all it requires is one call to your personal banker and ask them to set up new accounts for you!
What you need, really, are three separate bank accounts: the first one being your salary account, the second being an account for your savings and emergency funds and the third being the one for your personal expenses.
Ideally, the salary account should have only two transactions every month: after the salary is credited, you should transfer a fixed amount to your personal expenses account and the remainder of it to your savings and emergency funds account.
If you have a debit card attached to your salary account, cancel it. And link your investment instalments to your savings and emergency funds account. This way your salary account will serve as merely a drop box for your income – your employer drops money in the account and you transfer it to two separate accounts.
Still with us? Great!
Now, to be able to transfer a fixed amount to your personal expenses account – one which should have a debit and credit card attached to it – you need to jot down your all your expenses. It is from this account that you will be paying off your rent/EMI, spending for your groceries, Uber/Ola, bills for your dinners and parties, your shopping and basically everything. When you jot down your expenses – not just your essentials but also your indulgences – you will get the full extent of how much you are really spending. Once you see that figure spelt out, you will be forced to ask yourself if you’re overspending.
It often happens that when we confront our expenses, we discover that we don’t need to spend that much. That itself tends to serve as a wake-up call and you will be forced to cut down on some of the non-essential indulgences. These would most likely include shopping and going out. Once you take out those overheads, the amount of money you put away in the savings and emergency funds account will go up.
This will also mean that all your monthly spends will go from one account – the expenses account – which will have a fraction of your salary and not your entire paycheque.
The other advantage of this system is that it will force you to divide up your earnings into two distinct parts. When you have a single account, it is easy to look at your earnings as a single, indistinguishable pile over which you have lesser control. Chances are you’ve divided up your expenses and savings in your head but being able to execute it in reality can prove to be tad more difficult. The three-accounts system, therefore, works perfectly.
You could also work on a two-account system where your salary account and expenses account are the same. You simply have to remember to transfer a fixed amount to your savings and emergency funds account every month.
Disclaimer: Note that this article is meant for informational purposes only and should not be treated as expert advice. Please consult your investment or debt advisor to create a plan that is best for you.