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Managing your finances effectively can often feel overwhelming. Over time, I’ve refined my approach to personal finances into a system that helps you take control and make your money work for you.
It’s designed to simplify cashflow management, reduce stress, and guide you towards your financial goals with ease.
The idea is straightforward: separate your finances into three distinct areas to gain better control and clarity.
By dividing your money into three primary accounts, you can streamline your financial management and make sure that each aspect of your budget is addressed. This approach helps you maintain a clear overview of your finances, make informed decisions, and build strong financial habits.
This separation allows you to:
- Clearly manage your bills, ensuring they are always covered.
- Track your savings progress effectively, providing motivation as you see your savings grow.
- Enjoy your spending guilt-free, knowing your bills and savings are taken care of.
By creating distinct accounts for your finances, you maintain clarity and control, making it easier to achieve your financial goals.
How it works: the power of three
1. Bills account
This account is dedicated solely to covering your fixed expenses—things like mortgage or rent, utilities, insurances and subscriptions. Calculate the total monthly cost of all your regular bills and set that amount aside from each pay.
By separating your fixed costs into their own account, you reduce stress over bill shock as the money is already sitting in the bills account. This ensures your bills are always paid on time and removes the temptation to dip into this money for other purposes.
2. Savings/offset account
After your bills are covered, the next priority is savings. Here, you’ll decide on a clear savings goal—whether that’s building an emergency fund, saving for a holiday, or working toward financial freedom. What’s great about this is the sense of progress you get. Each pay cycle, you’ll see your savings grow, which can be incredibly motivating.
Watching your savings balance increase creates positive reinforcement, encouraging you to stick with your goals. If you have a mortgage, you can also use this account as an offset (more tips on this later).
3. Spending account
What’s left after covering your bills and savings goals is transferred to your spending account. This is your day-to-day account for discretionary expenses—groceries, dining out, entertainment, etc. The beauty of this is simplicity: you can spend freely within the boundaries of this account without worrying that you’re impacting your savings or bills. It’s about enjoying your lifestyle guilt-free, knowing that the other key areas are taken care of.
Building financial discipline
This system also helps build strong financial habits. When you automate your bill payments and savings, you’re less likely to make impulsive decisions. You’re setting your finances so that the essentials and goals are taken care of first, leaving what’s left for your “wants”. Over time, this structure reinforces discipline. It’s not about restricting yourself but about creating boundaries that ensure you’re moving toward your financial goals without sacrificing your lifestyle.
How offset accounts can work here
I do often hear ‘I have an offset account, isn’t it better to have everything in there?’
A common recommendation is to consolidate everything into a single offset account—using it to manage your bills, savings, and spending all from one place. While this approach simplifies the number of accounts you manage, it can create challenges.
When everything is pooled into one offset account, it can become difficult to track your expenses and savings. The inflow and outflow of monies can obscure your true financial picture, making it harder to see how much you’re saving or whether you’re staying on track with your goals. This can lead to the frustration of not knowing exactly where your money is going or feeling like you are falling behind.
But the best thing about offset accounts: some banks will allow you to have multiple offset accounts against a single loan these days and even when they don’t (like my bank), there are ways to structure your situation to ensure you are getting the full benefit of all three accounts offsetting your mortgage.
Final thoughts
My cashflow mastery system offers a straightforward and disciplined approach to managing your finances. By separating your bills, savings, and spending, you gain control, clarity, and the confidence to spend without guilt.
If you’re tired of feeling uncertain about where your money is going or want greater clarity around your savings to ensure you’re hitting your goals, this approach could be a game-changer for you.
The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
