Today is all about money management! You see, there’s one simple difference between rich people and poor people, and it lies in the way they set up their bank accounts.
Every rich person will have multiple accounts, all used for different purposes, with different automatic payments set up in each, whereas poor people will only have 1 bank account for all inflows and outflows of their money.
This post is going to dive deeper into this difference by breaking down how the rich set up their bank accounts, along with a complete breakdown of my own accounts and my thinking behind the way money works.
Remember, nothing in this post is specific financial advice, it does not take into account your individual circumstances. You should always seek professional advice from a financial advisor before making any financial decision.
With that out of the way, let’s get rich!
Table of Contents
One Account vs. Many Accounts
As I said before, the main difference between rich people and poor people is the number of bank accounts they have in their name.
Poor people typically have 1 bank account. That bank account is where they get paid, save and spend, all mixed together. It’s simple and it works. But, it won’t help you get out of the rat race.
Why? Because it’s too easily accessible for impulse purchases. An impulse purchase is something you don’t need, but buy anyway without much thought.
I don’t care who you are or where you come from, impulse decisions are built into us (especially when we’re young), and it’s extremely hard to overcome those decisions unless we have safeguards in place to prevent us from acting on them!
The main benefit of having many bank accounts is the fact that it eliminates the temptation of spending all of our money on stuff we don’t need!
We don’t see our bank balance everyday, and therefore we aren’t teased by our last paycheck.
This is the key to saving money and what allows us to invest down the track to build that incredible life we deserve!
My Bank Account Setup
Now, because none of this is financial advice, I’m going to share my setup with you all, and let you decide whether or not you’d like to copy it…
So it’s pretty simple, I have 4 accounts all used for a different purpose and across 3 different institutions:
Wages
I get paid into my Combank account and immediately transfer 75% of that across to my ING accounts. What’s left over is used to pay recurring expenses like car insurance and rent.
Saving
From the 75%, I put 40% of it into a savings account within ING. I then withdraw 90% of the total amount every 3 months and transfer it to my NAB account.
Investing
That 90% withdrawal from ING, into NAB, is used to invest. I invest with NABTrade, so the entire 90% (minus brokerage fees) is invested each quarter.
Spending
The other 35% from Combank is sent to my expense account within ING. I use this account to spend my money week-to-week on whatever the heck I’d like to spend it on (after bills).
Here’s a visual breakdown if I were paid $1,000 each month:
Automatic Payments: The Key to Saving
The key to building this habit is to make the whole process as automated as possible.
What I mean is, you have to set up automatic payments that occur every time you get paid, so that you don’t give yourself the chance to not succeed.
This is also why we use separate institutions, so that we can create these automatic payments.
So, every fortnight when I get paid, I have an automatic payment that takes 75% of that pay (I work this out in advance) and sends it to my ING accounts. When it gets there, I have to manually separate the saving and spending accounts, and then there is another automatic payment every 3 months that takes 90% of my savings and sends it to my NABTrade account. I then have to invest manually as well.
Main Point: set up as many automatic payments as you can.
This week’s blog post was short, simple and sweet! And that’s how your money management should be…
As you can see, having your accounts set up to generate wealth rather than spend money, is simply a matter of making it as easy as possible to get your money away from your bank card. We want to remove the temptation!
If you enjoyed this post, why not check out some of our other money posts:
- 5 Ridiculous Money Myths that You Didn’t Know Were Fiction
- Compound Interest: The Eighth Wonder of the World
- The Number that Banks Hope you Don’t Know About
Until next time,
Uncle N.
This post is not financial advice. It does not consider your personal situation. Before acting on any information within this post, you should seek the guidance of a registered financial advisor.