One of the things that I really wish I’d been taught in high school is money management. How wonderfully practical that would have been, and I’m sure would have helped me immeasurably over the previous 20+ years since I left school.
I loved maths—I took it to Certificate of Sixth Year Studies (CSYS) level, which has now been replaced by the Advanced Higher—but again, my criticism of how maths is taught in high school is that it’s not practical enough. I still have various formulae and theories in my head, I just don’t know how they can be used in the real world. But that’s another argument, for another day.
The problem with just one account
Like many people, I was advised to open a bank account when I started university in 1989. I’m still using that same account today. It’s now a Royalties Gold account, and acts as our main, current account.
It’s the account that our main transactions pass through:
Income
- Salary
- Child tax credits
- Child benefit
Expenses
- Direct debits (mostly house bills, mortgage, etc.)
- Savings payments
- Credit card payments
- Car fuel
- Groceries
- Miscellaneous personal spending
It looks a little bit like this:
On the plus side it’s pretty simple: there is only one account to be concerned with. On the negative side: all our miscellaneous personal spending also comes out of that one pot of money. And that’s where it gets complicated, and we are not accountable enough to one another for who spends money on what.
If I fancy a new CD I’ll dip into that account. If Jane needs a new top or new jeans she’ll dip into that account. Or lunch. Or coffee with friends. Or a magazine. Or postage. Or this and that and before you know it we’ve overspent and there are still two or three direct debits that need to come out before the end of the month.
Multiple accounts
Years ago Jane suggested that we needed multiple accounts to manage our money. I resisted and it didn’t happen. I couldn’t see the point. Would that not just make things more complicated, I argued?
No, it turns out. Multiple accounts actually make things a whole lot easier, so I’ve learned. And automating payments into those accounts makes things much easier still.
So, our income now gets paid into the same current account. This is our big pot of money out of which our direct debits still get paid, plus the credit cards (which now includes groceries) and fuel.
We’ve setup various standing orders which pushes money out monthly to various savings accounts, including those for Reuben, Joshua and Isaac; we’re trying to save as much of their child benefit as we can so it genuinely can be used on them. We’ve also setup a separate account to save for Christmas, and another to save for a holiday we’d like to take in a few years’ time to visit family in California.
One of the most important changes we’ve made is that we now pay ourselves a monthly allowance (which is now automated as a standing order), into our own personal accounts for clothes, CDs, software, magazines, birthday presents, etc. At the moment it’s £50 per month (and an extra £50 on our birthday). Because, we realised that we were actually much more protective about the money in our personal accounts than in the main account.
The new setup looks a bit like this:
I wish I’d been taught about this sort of thing earlier.
When I spoke with a Royal Bank mortgage adviser recently he said, “Oh, yeah! That’s exactly the kind of setup that we recommend.”
Where?! Where do you recommend this? I’ve looked through the RBS website and I can find plenty of information about the different type of accounts they offer: basic, silver, gold, black, student, graduate, etc. They have accounts for savings, accounts for deposits, ISAs, instant access, etc. But no advice, that I can see about how best to manage these in combination with one another.
Do you have any good tips?
It will be interesting to see how we get on over the next 12 months. I’ll report back with my feedback. In the meantime, do you have any good tips?