Put your money on autopilot: How to structure your bank accounts

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Put your money on autopilot - How to structure your bank accounts

Putting in place a sound financial plan is more than just crunching the numbers and looking at different scenarios to help you achieve your financial and lifestyle goals.

One of the most important things you can do is put in place simple processes so you need to think less about your money day to day.

Automating how you manage your money each week, or more specifically, the flow of your money, can help you gain control and minimise the amount of money decisions you need to make each day. Because let’s face it, when we’re busy, stressed, tired, working and raising kids, there’s only so much our minds can handle before the bad decisions start to kick in.

It’s a bit like living a healthy lifestyle. You can set some guidelines for yourself, like only having fruit and nuts for snacks, or limiting take-out to once a fortnight. You can put the basics on autopilot, like getting a weekly fresh produce delivery. And all of a sudden, living healthy becomes much, much easier.

It’s not about restricting yourself, but about setting up systems that make it easy to stick to the plan.

The same thing applies to your money.

So let’s take a look at how someone with a transaction account, mortgage and offset account, might set up an automatic flow of money.

Income

Your wages are paid straight into your mortgage offset account. That helps reduce the interest payments on your home loan.

If you are investing, any dividends or investment income you receive are paid into either the offset account or reinvested. Which strategy is best depends on how investment markets are performing.

For example, if your mortgage repayments are at 5% interest, but the share market is paying 10% returns, then it may be better to invest. However when interest rates rise, it might be time to focus on paying down the mortgage.

Of course, that’s a simple explanation, so make sure you seek advice to make sure all your needs are taken into account when trying to determine the best path for you.

Bills (non-discretionary expenses)

Non-negotiable expenses, such as your mortgage repayments (including interest), car registration, electricity, and water are paid directly from your offset account.

Interest payments from any investment loans, such as a margin loan, are also drawn from the mortgage offset account.

Lifestyle spending (discretionary expenses)

Each week, an agreed amount is automatically transferred from your mortgage offset account into a “working account”. A working account is simply a basic transaction account.

The money in this account is used to pay for your discretionary expenses. These include things like food, clothes, entertainment and dining out. They’re things that typically involve an emotional decision. It’s also one of the areas people often have the most trouble (and temptation) with.

Think of this money as “safe to spend” money. If you don’t spend any more than what’s in your working account, you’re on the right track.

Credit

If you’re tempted by credit cards, we suggest switching to a Visa debit card attached to your working account. That means you can still purchase things online, but you are drawing from your own money, rather than credit.

And if you don’t have a mortgage, just substitute the mortgage offset account, with a high interest bearing cash account.

Remember, it’s all about strategy, actions and structure. All we want you to do is take care of the income and lifestyle spending. The plan, the structure and the systems will do the rest.

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