I started by having Rs.5000 in my savings account, and considered spending through a debit card (plastic money, how could I have missed it!). But then, eventually when I started maintaining my personal finances, I felt the need to have dedicated accounts for different type of spending.
This implies more so to guys who do not have the patience to write down each bit and penny down. This might help you. What I did was as follows:
First, I had to know how much I have. I started by collecting information like the current balance from all my bank accounts. This was painful though but helped me a lot. I had even contacted some of my earlier owned Credit Card company and found out what was the debt I owed. Checked all my savings including Mutual funds, Life Insurance and finally added up all the credits and deducted all loans and/or credits i owed. This has given me my Gross Worth.
Second, I had to adopt a strategy of spending. And wanted to dedicate different bank account for different kind / purpose of spending (saving as well). I am sharing with you the following to let you know how simple it is now for me to manage my accounts.
I had something called Account Group.
Account group is the purpose for which the account was designated. Given below are a few account groups I use.
- Cash Accounts (Checking Account)
- Savings Accounts
- Tax Exempt Savings
- Investment Accounts
- Loan Accounts
- Credit Accounts
The first four account groups are Credit accounts (Which is considered as an asset). The last two account groups are Debt accounts.
Oh! don't you think it becomes simple to manage this way? Well for me it does. Here is a brief description of each account type
Cash Accounts: These are accounts which can be considered for regular (monthly) expenditures. I have mainly two accounts in this, one is Cash On Hand account which is used to track my spending in cash and the other is Checking Bank account which is basically my salary account. This account is used by myself to pay all my bills and house rent etc.
Savings Accounts: I have a few different accounts for different purposes. For me, savings accounts are held in different banks. You may choose to have a single bank and yet have multiple accounts as well. But the reason I choose to have different accounts is the availability of ATM and bank branches. Each account has its own purpose. Like say a savings account in HSBC bank could be exclusively for EMERGENCY fund. which you could use when you have any unexpected expenditures in the middle of the month. But this should not be very easily accessible. The more easy it is to access the Emergency Bank Account through ATM, the more likely you might run the the bank for non-emergency withdrawals.
Tax Exempt Savings: Tax exempt savings account has all types of account which fall under Sec 80C of Income Tax. All Life Insurance accounts, Medical Insurance (if any), Mutual Funds etc. These accounts have a different category because of its nature of savings, you normally get the benefit out of these accounts in a span of say 3 to 10 years. So this money, we know can be re-utilized for a better purpose.
Investment Accounts: DEMAT accounts held in any bank or financial Institutions like India Infoline, ShareKhan etc. These have different time of return, so have a different category. The time of return from these account depends on which time of investor you are or your risk tolerance towards investments. I have a moderate Risk tolerance portfolio and so my returns often in a year or two.
Loan Accounts: These are pure debt accounts that I used to have. These accounts keep reminding me 'Never take any loan next time'. :) So I have this account category but love to keep it empty (or with closed accounts).
Credit Card: You can have these type of account for all your Credit accounts. These accounts with or without our notice are often debt accounts.
The above set of account categories has given me a clear picture of what, how and from where I spend for the next vacation or maybe a visit to the grocery stores.
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