It’s so easy to be unaware of where your money is going. We used to have checkbook registers to keep track of our money. Now everything is digital and subscription services!
Let’s face it, for many Americans, the only reason they have any savings is because of their 401k. To be more specific, it’s because the money never enters their checking account. It gets directly deposited into their 401k by their employer.
Any money that enters your checking account can be at risk to overspending or emotional responses.
The solution my wife and I found that worked wonders is establishing a Wealth Building Account.
The purpose of this account was to capture our monthly savings goal and use it to purchase additional assets. It is the net that captures everything you want to save rather than let it slip through.
Many Americans have a cash flow that looks like this:
Their paycheck gets deposited into their checking account and then their money gets spent to fund lifestyle and bills.
There is no strategy to prevent overspending. It becomes a mindset of “whatever is left over” is saved. How often do you have anything left?
So instead establish this strategy:
5 Steps to Accomplish This Strategy:
Step 1: Calculate your average monthly spending by adding up what your spend is on a monthly basis. Include the following categories and anything else that shows up on your ledger consistently.
- Going out to eat
This can feel daunting. Keep it simple. Look at your last 3 months. What is it you normally spend? Write that number down so you can refer to it later. (Start out slightly larger than you might think to have a bit of flexibility at first)
Step 2: Open up a checking/savings account at a different banking institution. This will become your Wealth Building Account
The reason it should be not at your current bank is the more out of sight this account is the better. This is the start of establishing a new habit.
Step 3: Tell your employer to deposit your full paycheck into this new account (Wealth Building Account)
Step 4: Set up automatic transfers from this Wealth Building Account to go to your normal checking account t.
- The amount to transfer is the ‘spend’ amount from Step 1
Step 5: Continue to live out of your old checking account.
Example of what the savings/spending would look like is:
Let’s say your monthly pay after taxes is $8,000/month, so $4,000 per paycheck. (Two paychecks per month)
Your lifestyle/expenses (step 1) is $5,000/month. So, your biweekly lifestyle is $2500.
Twice per month, your $4000 paycheck gets deposited into your Wealth Building Account.
Twice per month, $2500 gets automatically transferred from your Wealth Building Account to your regular Checking Account.
A total of $5000 is your money to spend and pay bills.
$3000 ($8000 - $5000) gets saved into your Wealth Building Account
By following these steps, you will keep control of your money and in turn keep control of your financial future.
If you have any questions, feel free to reach out to myself or anyone on my team.
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