Money Jar System - advise needed on bank accounts

RLighty

After having no knowledge on banks, money, savings etc. I have decided to get my act together and start controlling my finances to eventually become financially free and knowledgeable for the rest of my life.

Which has lead me here, seeking advice for the plan I have in my mind – inspired by the book Secrets of the Millionaire Mind. It’s really helped me to get my act together and change my mind set and attitude towards money.

I’m 23, worked full time since 18 and have no credit cards, no finances, and no debt and have a few grand which I want to do more with. I take home just over £ 1500 a month and would like to save with the following methods listed below; splitting the money I accrue into different bank accounts.

Currently I have my Halifax Reward Account (current account which pays me £ 5 per month) this has about £ 7,000 in and is where all my money sits really, Halifax Instant Saver Account which has about £ 8,000 in. Earning a whopping 0.25% now and a recently opened Halifax Help to Buy ISA to which I have £ 1,000 in and will be depositing in £ 200 per month into going forward.

So all I have is 3 x accounts to my name. Current account, Savings account and my new ISA. I now want to split my money into the following categories which the book suggests to follow:
(there was a image here, but wont let me upload it)

Necessities (NEC – 50%) - This is for your everyday expenses like gas, rent, utilities, etc. This is the money that you use to “survive” on.

Financial Freedom Account (FFA – 10%) - This is your wealth building account. Also known as your “golden goose” This follows the “pay yourself first” financial principle. The money that you put into this jar is used for investments and building your passive income streams. You never spend this money. The only time you would spend this money is once you become financially free. Even then you would only spend the returns on your investment. Never spend the principal.

Long Term Savings for Spending (LTSS – 10%) - This is the money that you put aside for big purchases like cars, vacations, etc. This account can also be used as an emergency fund.


Education (EDUC – 10%) - This is basically your personal development account. This money is used to buy books, CDs, attend seminars and events. When you grow, your money grows! 


Play (10%) – This is the money that you have fun with. In the book, T. Harv Eker recommends that you spend this money on luxurious things. This is designed to bring balance to you finances so you will be increasing your wealth and having fun at the same time. You can go shopping or even eat at a nice restaurant. It is highly recommended that you spend this money every month!


Give (10%) - This money is for giving to others, tithing and donations. Giving is a critical financial principle to your success.

I would split up my monthly pay into the accounts as follows:
NEC = £750 - main bank account, current account
FFA = £150 - bank account I deposit into, but don’t touch
LTSS = £150 - bank account I deposit into, and can touch once in a while
EDUC = £150 - bank account I can clear every month for personal development
PLAY = £150 - another bank account I can clear for fun things
GIVE = £150 - another bank account I can clear when savings for others

An important thing to note is that I don’t need to stick to the amounts I have listed there, it’s just an example and as long as I am saving at least a £1 then I’m getting closer to becoming financially free that I would be without the accounts.

That being said I have gone into more detail below:
Bank Accounts to split my £ 1500 a month into

Necessities: NEC (50%)
Keeping in £ 750 a month from my pay slips into…
This is my main account, current account for direct debits, payments etc. an account to survive on!

Financial Freedom Account: FFA (10%)
Depositing in £ 150 a month into …….
Savings account I do not touch - looking for a fixed rate saver for a long time

Long Term Savings for Spending: LTSS (10%)
Depositing in £ 200 a month into the HTB ISA with Halifax.
Savings account I do not touch for a while - looking for a fixed rate saver that I can dip into for emergencies or for big purchases, a deposit for a mortgage in this instant.

Education: EDUC (10%)
Depositing in £ 150 a month into …….
Savings account that I can dip into to make regular purchases towards my education with.

Play: PLAY (10%)
Depositing in £ 150 a month into …….
Savings account that I can dip into to make regular purchases towards my happiness with.
Looking for a flex saver where I can build up the money and spend the money as well by the use of a debit card.

Give: GIVE (10%)
Depositing in £ 150 a month into …….
Savings account that I can dip into to make regular purchases towards my happiness with.
Looking for a flex saver where I can build up the money and spend the money as well by the use of a debit card.

So I need to look for:

1 x current account for NEC I can pay into £ 1500 every month, and then distribute out from into my other 5 accounts. Leaving £ 750 a month in the account to live off - direct debits, bills etc.

1 x fixed rate saver for FFA for monthly deposits into that I will not touch for a considerable amount of time.

3 x accounts where I can save money in, whilst being able to spend from for EDU, PLAY and GIVE.

Which leads me to the main reason for this post and that is what accounts to choose from for what I need. I am not too sure what ones would be the best for my needs, is this something I would need to employ a financial advisor about? I’m not too sure even if this idea is crazy or not! It seems logical though…

What puts me off and what I assume puts others off is the fact you don’t really know what to choose and what is best for my money where I won’t get stung, where the money is safe and how long to keep it in accounts for etc. before you should move on.

My family are not very money savvy and I think that’s rubbed off onto me. The thought of calling a bank or going into branch to discuss my options used to daunt me. I’ve looked on a few comparison sites for savings and have seen what look like good options, but aren’t 100% convinced that what I choose will be the best for me.

Would anyone be able to shed some light or some ideas on this plan? And what you’d think would be best?

Thank you for your time.

Ryan

jimjames

I'd say it's great you've accumulated sums like that but crazy to keep them in the accounts you are using now.

Choose a mix of the best paying current accounts and on £15k you could get between 4% and 6% interest each year. Instead of close to zero. In pounds that's nearly £750 per year

bobobski

Also don't forget that the "jars" can be virtual - you don't have to separate them physically. Some people like this anyway (e.g. I'm opening an "annual expenses" account separately so it doesn't get confused with my savings and I won't be earning a lot of interest on these sums anyway because they're small) but for various savings pots it may be worthwhile to keep the money physically together, for example so you're not reduced to using lower interest accounts.

SG27

Personally I'd forget most of that and concentrate on more 'real' goals. For example do you plan to buy a house at some point? If so my split would be deposit/pension/emergency fund, or something similar.

Obviously get some decent interest paying current accounts as others have said.

richy999

I agree with the idea of virtual jars and splitting your savings across the best paying current accounts to maximize your interest. You don't need separate bank accounts to achieve this mental separation. Indeed, having all those debit cards you propose for different purposes is overly complicated and will quickly drive you crazy. Keep things simple so that you don't get burned out and loose enthusiasm.

I would recommend that you create a budget containing your various categories and % allocations.
You won't be able to get these % allocations right 1st time which is why you should validate this budget tracking your spending. You should also build into this budget, any goals and values you have... for instance, the goal to save for a deposit on a house or the value of giving charity etc.
Your fixed expenditure combined with your goals and values will shape your budget. Don't just go with the % allocations recommended in this book... there isn't a one size fits all.

You might pick up a few good tips and ideals from 'Your money or your life' and 'The millionaire next door'.

RLighty

jimjames wrote: »

I'd say it's great you've accumulated sums like that but crazy to keep them in the accounts you are using now.

Choose a mix of the best paying current accounts and on £15k you could get between 4% and 6% interest each year. Instead of close to zero. In pounds that's nearly £750 per year

Thank you for your reply.

What would you suggest?
Any ones in particular I should look out for? Or what I should avoid etc?

I've seen one on the Post Office, called an Online Saver which offers 1.30% gross/AER variable - this is a kind of savings account I guess but with easy access so I'm not restricted to what I can withdraw...

What puts me off its the fear of banking with someone other than Halifax, which is stupid! But literally having no one to advise me in my family etc is killing my confidence to make a change!

RLighty

bobobski wrote: »

Also don't forget that the "jars" can be virtual - you don't have to separate them physically. Some people like this anyway (e.g. I'm opening an "annual expenses" account separately so it doesn't get confused with my savings and I won't be earning a lot of interest on these sums anyway because they're small) but for various savings pots it may be worthwhile to keep the money physically together, for example so you're not reduced to using lower interest accounts.

Thank you for your reply there.

What do you mean when you say that "they can be virtual"? ...as in all the savings can just be in the same account? As opposed to being physically split into different accounts/banks?

RLighty

SG27 wrote: »

Personally I'd forget most of that and concentrate on more 'real' goals. For example do you plan to buy a house at some point? If so my split would be deposit/pension/emergency fund, or something similar.

Obviously get some decent interest paying current accounts as others have said.

That does make more sense to be honest!! Would make tracking and keeping on top of the accounts/money easier on the eye and the mind. And yes, I do plan on getting a house/apartment either this year or next.

Would you have any suggestions to decent interest paying current accounts at all?

The problem I have is the severe lack of knowledge and confidence to move and commit to a new bank account(s) - hence why I have always stuck with Halifax.

I worry about hidden fees, commitments, being locked in, restricted access, effecting credit score etc.

Thank you for your time - sorry if I sound absolutely clueless (it's probably because I am.. )

RLighty

richy999 wrote: »

I agree with the idea of virtual jars and splitting your savings across the best paying current accounts to maximize your interest. You don't need separate bank accounts to achieve this mental separation. Indeed, having all those debit cards you propose for different purposes is overly complicated and will quickly drive you crazy. Keep things simple so that you don't get burned out and loose enthusiasm.

I would recommend that you create a budget containing your various categories and % allocations.
You won't be able to get these % allocations right 1st time which is why you should validate this budget tracking your spending. You should also build into this budget, any goals and values you have... for instance, the goal to save for a deposit on a house or the value of giving charity etc.
Your fixed expenditure combined with your goals and values will shape your budget. Don't just go with the % allocations recommended in this book... there isn't a one size fits all.

You might pick up a few good tips and ideals from 'Your money or your life' and 'The millionaire next door'.

Hi Richy, thank you for your suggestions there. I’ll definitely be taking a look into those reads.

The idea I had was to yes separate the money into separate accounts, but not necessarily have a card for each - rather whenever I needed to “dip into” any of the branching accounts I would just move the funds into my main current account. So only really having 1 debit card, as I do now - but having the other accounts there Online so I can consistently distribute out my savings each month so I can see physically how each savings jar is going if you know what I mean… but then again I want simplicity, so maybe this might turn out to be a nightmare?

Oh yes I agree about the %’s they suggest. 10% is a lot at first, but they mention that even saving as little as a £1 a month into the accounts it better than none.

How would you suggest I create a budget for this idea? Would that involve different bank accounts or just simply my Current Account and a Savings Account?

Thanks

pathtofreedom

I use ynab which is software to help manage your money. You could still have the categories you want, or different ones.

When people say virtual they mean you keep all your savings in one account, thereby earning more interest as you'll have a bigger amount in there. You need to have a spreadsheet or some software like ynab though to stop you accidental spending out of the wrong category. So you always check your spreadsheet, or ynab before moving or spending any money out of any of the accounts. Rather than getting over exciting and seeing a few thousand in savings in one place and thinking you're "rich".

Even if you don't use ynab it is worth watching their free webinars to see how they budget and allocate money and you could always use a spreadsheet instead. I like their graphs and things though so it works well for me.

Eco_Miser

This book was not written with the current UK financial scene in mind. Ways of saving were very different less than 10 years ago. Take note of the advice, and alter it to fit your situation, now.

Where to put the money - look at this list.
As others have said, use virtual jars. Perhaps use your Halifax Reward account for your immediate needs spending, but since it doesn't pay interest, keep the balance low. Spread the rest around the high interest accounts, including the Regular Savers (you can actually put more into them than you have spare every month - done right this moves money from lower rates to higher rates and makes room for windfalls).

Necessities (NEC – 55%) Really, you don't have a great deal of control over these (if they're truly necessities) apart from ensuring you're getting the best deals - see MSE main site. So the actual percentage is what it is, and you should be trying to minimise it (within reason, no need to live on cold baked beans in a freezing garret). The less you spend here, the more you can save for financial freedom or luxuries.

Your Financial Freedom Account - this should be in an S&S ISA, or possibly a pension, not a bank account. You don't have to invest every month, but this is certainly possibly, can be completely automated, and can get lower transaction fees.

Personally, I wouldn't be spending 10% of my income on so-called education, which sounds more like donating to the self-help industry, nor would I try to spend 10% of my income on 'fun' every month. Certainly you need to spend a little on relaxation, but 10%!

Oh, you can't spend 5% on tithing - by definition it has to be 10%.