How best to budget

lightbulbtime

Hi,


I would like to put forward my initial step in my plan of attack for budgeting and see what everyone thinks.


When it comes to my banking situation I have the following three accounts already in place:

• Current account with a debit card where all my wages go in and direct debits come out of. I currently use this for everything and do not use the other two below.
• Second current account with a debit card, no wages or direct debits on it.
• Savings account with no debit card but still have instant access.

I was planning on using them as follows:


Use account 1 for wages going in and payments that are fixed such as; mortgage, council tax, phone bills etc. In other words direct debits and standing orders only. This would mean that anything above a fixed amount would be transferred out to account 2 or 3 at the start of each month after payday. This account should hit zero once all bills are paid (I would leave £50 as a buffer so it never goes negative). I would no longer use my debit card on this account.


Use account 2 for food and fuel only. Only my allocated budget for fuel and food would hit this account at the start of each month and once I run out of money, that’s it till next month. This would be the only account I would use my debit card on.


Use account 3 for two things;


First, things I currently pay monthly for but could pay less as a lump sum such as; car insurance, road tax, car maintenance etc. and;


Second, any other budgeted item that I should not have direct access to such as; holiday fund, dentist, clothes etc.


I still have to figure out what the budgeted amounts I require are going to be, but what are your thoughts on this initial strategy?


Thanks, Lightbulbtime

Socajam

Account 1 for all bills as you stated - mortgage, council tax, phone bills etc. In other words direct debits and standing orders only.
Acct 2 for - car insurance, road tax, car maintenance, holiday fund, dentist, clothes etc.
Account 3 for life happens fund and emergency fund only .

lightbulbtime

Socajam wrote: »

Account 1 for all bills as you stated - mortgage, council tax, phone bills etc. In other words direct debits and standing orders only.
Acct 2 for - car insurance, road tax, car maintenance, holiday fund, dentist, clothes etc.
Account 3 for life happens fund and emergency fund only .

Thanks for the response Socajam. My theory behind using account two for fuel and food only was to insure I didn't use the money set aside for car insurance etc. as it was limited in funds. I would just keep the third account for everything else as I couldn't touch it by accident. Is this theory flawed?


LightBulbTime

warby68

Or you could increase the amount you leave in Account 1 to also cover the annual bills as that isn't being touched either under your plan?

lightbulbtime

warby68, very true. Am happy with the way I've laid things out, seems straight forward and simple to me. Thanks for the option though, that would also work very well.

Yellow_mango

That’s similar to what I am doing. Fingers crossed it works for us!

My only comment is that it’s probably a good idea to have a budget, however small, for discretionary spending. The odd coffee or drink or birthday present or takeaway or other small unplanned purchase. Or is the plan to take this from anything left in the food and fuel account?

lightbulbtime

Yellow_mango wrote: »

That’s similar to what I am doing. Fingers crossed it works for us!

My only comment is that it’s probably a good idea to have a budget, however small, for discretionary spending. The odd coffee or drink or birthday present or takeaway or other small unplanned purchase. Or is the plan to take this from anything left in the food and fuel account?

Hi YM,

I know I can reduce my monthly food bill, so I'll take these small items from there right now and adjust my budget figures as I go along. I have no birthdays to consider till October and by the looks of it I will have plenty in my savings by then to cover it. Just finished looking at my budget plan, feeling good about it and it's more than achievable providing I get a moderate, but not overbearing amount of overtime each month.

warby68

lightbulbtime wrote: »

warby68, very true. Am happy with the way I've laid things out, seems straight forward and simple to me. Thanks for the option though, that would also work very well.

My reasoning is that with your current plan for No 3 you will have a mix of fixed bills and variable stuff and therefore have to recheck what is available for what quite often. Totting up the annual stuff and allocating it to bills can be an annual exercise.

You could also do food and fuel on a credit card if you are disciplined. A low limit can work as a budget backstop and you can have some kind of reward card. That would leave No 2 account for any discretionary spends you might have.

Just other options to consider.

I think a bills account, a spends account and a savings account (sometimes more than one of each) is a popular set up for lots of people which works well and, over time, can virtually run itself.

lightbulbtime

warby68 wrote: »

You could also do food and fuel on a credit card if you are disciplined. A low limit can work as a budget backstop and you can have some kind of reward card. That would leave No 2 account for any discretionary spends you might have.

I like your idea of using a credit card to pay the fuel and food, I hate using credit cards. Haven't used one in over a decade although I've always had one sitting at home. I'll check if there are any credit cards that provide cash back or some other incentives. I would set up a direct debit to pay in my budget amount each month. Hadn't thought of that, thank you :T

EssexHebridean

The drawback of using a single account for "everything else" effectively is that you will have to keep very disciplined records to ensure that you always know exactly how much is in each "pot" within that one account. We run a joint account which is basically the "bills" account - so it covers everything in terms of months expenditure. Our own personal accounts are for our personal spending, and what we do with the contents of those is entirely personal to us, but those accounts cover anything that is "me" rather than "us" if that makes sense. Off the back of the joint account we have a whole set of savings accounts - all online opened and operated only so "virtual accounts" if you like - which get fed monthly with regular transfers for things like car expenses, holiday fund, christmas presents for the family, household expenses - which covers home insurances etc. Our bank lets us re-name each of those accounts so we can recognise what they are at a glance on the online banking. Finally there is a couple of (higher interest) accounts for longer term savings so one is effectively our emergency fund, the other is even longer term than that. The first gets topped up again when needed, the second gets a regular monthly transfer. This way everything is in it's own place and we can see at a glance what is in each "pot".

lightbulbtime

Thanks EH, wasn't aware i could create multiple 'pots' online like that, although I'm vaguely aware of Intelligent Finance providing something like that. I'm phoning them now to find out how they can help.