Our money can, at times, feel like it is disconnected and disjointed. We might have accounts spread all over the place and among many different banking institutions. Your bank accounts might start to feel like that messy hallway closet; a large unsightly, and unorganized, mess. Your banking might feel scattered, unruly, and a place of disharmony.
However, in these modern times of electronic banking and global integration, we can easily systematize our banking, money, our savings, and our bill payments all by implementing a simple system that uses the functions most banks include in their portfolio of offerings to their customers for free. You can do most of this yourself, or go into your local branch and talk with a banker.
Why Should I Systematize and Organize My Money?
When money flow is organized and integrated into a simple system, the benefits can be astounding. Below are a few benefits:
Â· Becomes Organized - This one is the most obvious, but one of the best reasons. When your money is organized, it becomes clear. Each dollar has a clear goal. For example: having your accounts separated, labeled, and linked allows for integration while giving clear boundary lines in segregation (i.e. Household checking, My Savings, Bill Payment Account, etc.)
Â· Becomes Integrated - This facet aids in giving you control over your money flow. This allows for your automated banking functions to work on autopilot. Having all your accounts linked together makes the automatic transfer of money between accounts possible. Since your accounts can now "talk" to each other, your money will seem less disjointed. Another benefit of this is that your accounts become cushioned by each other. Example: If an account balance becomes too low and a bill is due, money can be automatically transferred from a linked account to cover the expense and avoid expensive penalties.
Â· Becomes Systematic - Having your money work and organize itself will help you spend less and save more. This will also free up your valuable time. Doing so also adds a certain, "out of sight, out of mind" quality that can also help you develop more self-control and reign in your spending habits. Example: If money is automatically saved on a systematic basis and sent to your savings account, you don't have to worry about spending that money and inhibiting your savings goals.
Things You Will Need
The word, "system" might sound complex, but this system is actually very simple. When it comes to money, the acronym KISS, which stands for Keep It Simple Stupid, really becomes a helpful rule to follow.
Below is a visual representation of the system. This will be our reference point from this point forward.
Before I lay down the specifics of the system, take a look at the picture above. Take note of the fact that the checking account is at the center of all the action. In a sense, this is the heart of your financial organism. It might be helpful to think of your money flow as you might think of blood flow throughout your body. Money gets pumped into the checking account and then is systematically pumped into the linked accounts. It does this without you even thinking and it does this systematically. Check with your bank to make sure your checking account can handle these features.
The steps for building the system are as follows:
1. Establish Online Banking With your Bank - This is a common feature among almost every modern bank. This is your snapshot and window into your financial picture with the bank of your choice. From here you can manage and maintain your banking system.
1. Set Up Direct Deposit - This is the first part that must be established as this is the nutrition source for your entire money system. Most employers and payment systems offer direct deposit into a bank account of your choosing. The money you are owed is sent automatically into your bank account from the paying institution. Most direct deposit methods also allow for varying percentages to be allocated to multiple and separate accounts. This is one way you can set up an automatic savings. Example: You can send 75% of your paycheck to your checking account and send the remaining 25% to your savings.
1. Link A Savings Account - This is the automatic savings portion of the plan. Most banks allow for an automatic savings withdrawal to be set up systematically every month. Specify a dollar amount you are comfortable with and that doesn't leave you with too little cash left over for other expenditures. This amount should be disposable savings money. Example: You may have $100 automatically transferred at the end of each and every month to your savings from your checking.
1. Set Up Automatic Bill Payment - This allows you to pay your bills on time every month. If these bills are recurring, you can set this up to pay your bills automatically. If you do not feel comfortable with the automatic payment method, you can submit the payments manually through the banks system. The bank will send a check directly to the institution on your behalf. Also, most banks will contact you in advance to let you know your bills are almost due. All of these features help you avoid late payment penalties. You will need copies of your billing statements so that you can add the account numbers to your automatic bill payment.
1. Establish a Personal Line of Credit - This acts as a built in buffer for your banking system. Link this line of credit to all your accounts. In an emergency, you can transfer money from the line of credit to your accounts. If you find your balance is too low, you can pay bills if you are short one month, and since the account is linked, you can make payments directly from your online banking portal. This will require a credit check and this account will carry an interest rate and payment structure for any balance. As this is a credit account, this should only be used in an emergency.
If you have followed the steps above, then congratulate yourself on a newly formed, and efficient, system of money flow that will help you save and monitor your finances through your bank. Your money is yours to control. Make sure you have a system in place that will help you do this as efficiently as possible. Remember, when it comes to your money, efficiency means more money saved and more money that is in your control.
Tips & Warnings
If you are happy with your bank, and they have all the features needed to establish this system, then stay with them. Often a good banking relationship is very helpful. If not, consider looking at other institutions. If you do this, shop around and find a bank with which you feel most comfortable.
One added benefit to establishing a system such as this is that most banks reward their customers by eliminating account fees if these features are in place!