For years, we in the family have tried different approaches to organizing home finances. Some did not work for us, some were not interesting to follow, some were not giving any result. But the last couple of years we have been using something that looks fully suitable. This method is transparent, it works for saving and at the same time, it does not make us tighten the belts. Also, it looks like this method is applicable to any volume of income.
I will describe simply as we are using the system, without defining overall rules. If you like the idea, there is no need to repeat it for 100%, just borrow the key features.
We do not have a mutual bank account, each of us has their own (and they are in different banks). So, operations look more complex than they could be.
One of these account plans serves for our day-to-day spendings and short-term savings. We have issued two bank cards linked to the main account, each for every person. So, one of them belongs to the account owner, and another one has a guest status. Both people can operate the accounts within the plan with a mobile application. This is how we transfer money within one plan.
The checking account, which is linked to the cards, is used for weekly spendings. With it, we pay for the basic needs as supermarket, cafes and regular buyings.
Besides the checking account, there are some saving accounts. They do not have any time limits and their conditions allow to take the money back at any time. We use them for certain goals and even assigned them special names. For these accounts we set up some rules, which help us to reach the goal, I describe it below.
As a result, we have such accounts:
Account plan #1 (Bank #1)
- Checking account
- Home saving account
- Vacations saving account
- General saving account
Account plan #2 (Bank #2)
- Checking account (out of usage)
- Emergency savings
We can create more saving accounts if needed, or remove those which are not actual anymore. For example, we used to have “Car saving account”. Initially, we used it to save money for buying a car and later topped it up every month to use for serving the car. But finally, we decided that we will serve the car from our regular budget and removed the Car-saving account.
We get our incomes to the checking accounts. Right after getting the salary we pay regular bills such as rent, car loan, gym membership etc.
Then, we top up the saving accounts. This means every month some particular amount goes to “Home saving account”. The same works with “Vacations saving account”. And some more, not mentioned :-)
When everything is paid and saving accounts are taken care of, we calculate how many weeks there are before the next salary. Sometimes it is four weeks, sometimes five. We have defined the amount of €N to spend every week. So, we top up the “Buffer” account to either €4*N or €5*N.
It can happen that after all the payments there is not enough money for €4*N. In this case, we temporarily decrease the weekly limit and try to fit in. Nevertheless, usually the decreasing is minimal and we manage to live without touching our savings. But we also remember that the limit had been decreased and try to behave appropriately, skip restaurants and postpone expensive entertainments.
If it happened that this month we have more than €4*N, the rest goes to “General saving account”. Unexpected bonuses or additional incomes also sink there.
Every Friday, we transfer €N from Buffer to the checking account. We used to do it on Mondays, but Fridays work better. We spend the most on Fridays and weekends and do most entertainments. After that, from Monday to Thursday we just live with what had left :-) If by Friday there is more than 0, this small amount goes to General saving account. And we start a new iteration with the next €N.
As I mentioned, both bank cards are linked to this checking account. And we both have an access to it with a mobile application. This is how each of us can control the balance.
Sometimes, we need some more money for special buyings. Like, buy some expensive clothes or a gift, or pay for education. In this case, we can either borrow from the next week or spend money from the General saving account. However, we aim at growing the General saving from month to month.
When we need to book plane tickets or a hotel, we pay for it from the Vacations saving account. By now, we already know how much we need to put there every month to finance our travelings. (Spoiler: a lot!) From the same account, we spend when on holidays. In addition, the account balance shows us if we can afford longer and more expensive trips next time.
By analogy with the Vacations saving account, it is possible to create Education saving account, Health saving account, etc. It is not actual for us at the moment, but maybe will be actual for you.
We have been using this system for almost two years. I like that it balances our lives. On one hand, it does not limit us too much, because the weekly €N amount is big enough to afford restaurants and jamons. On the other hand, there are some boundaries. They make us keep saving accounts full. This results in higher quality of our lives. We have saved quite a lot for our future home, and at the same time, we always have enough for good vacations. Moreover, when we come back from such vacations, there still are money for daily basics.
In theory, this system should also work for lower income. The savings will progress slower but the idea of financial balance should still be working.