Banking Framework by Malcolm and Gabby

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What is this?

Managing your money is hard. And sometimes scary. I'm tackling this head on. I'm not an expert, but I want to share what I've learnt so far.

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Here is a description of an account framework that a banking guru shared with me. It ensures that you prioritise paying your bills, actually stick to your budget, and track your cash flow. I hope this helps other people make a start on untangling this stuff!

My personal situation: I am a freelance software developer, living a fun but unpredictable life with varied income. I don't get regular payments, I go through times of abundance and dry spells. I want be in control of my money, know what is sensible for me to spend, and save.

I bank with KiwiBank, who have incredible service, and make it super easy to set up an account with them. They have two great features called Sweep and Paystream which take a lot of effort out of putting your money in the right places. Kiwibank also allows you to link two accounts to an EFTPOS card, on on each button. I link cheque to SPENDING, and savings to BILLS.

This is a starting point that you can edit to cater to your own needs.

All percentages and numbers should be adjusted to what you need

The Account Framework

The SUPER SIX:

• SPENDING
• BILLS
• REIMBURSALS
• CREDIT
• SAVINGS
• TAX (if you pay your own tax)

BILLS

• BILLS is the FIRST PLACE money from work income hits your accounts.
• It gets distributed to various other accounts after entering through here. BILLS is the account that splits the money across other accounts using Paystream. When a payment is made to BILLS, 40% goes to SAVINGS, 20% goes to TAX (if you're a contractor), and the remaining 40% stays in BILLS.
• BILLS pays the Bills. BILLS holds a mountain of bill money - say, a 6 week buffer to ensure it always has enough, especially when you get paid sporadicaly.
• Set up Automatic Payments to pay your rent/internet/power e.t.c from this account.
• Also, setup a weekly or fortnightly auto-transfer from BILLS to SPENDING. This figure is your weekly/fortnightly budget, what you want to have access to to spend.This means that my EFTPOS card (which has a button linked to SPENDING), will show I don't have the funds if I go over my set budget, and I won't eat into bill money, or what I intended to save.
• Apart from the basic necessary automatic payments of rent/internet/power e.t.c You can also choose to treat BILLS as all the other boring spending, like groceries, and transport. e.g when you're at New World, you can pay for your groceries by using the savings button linked to BILLS on your EFTPOS card, but when you're at a cafe buying cake, you can use the cheque button linked to SPENDING on your EFTPOS card. This separates the frivolous purchases from necessities when you look over your accounts and see where your money is going.

SPENDING

• SPENDING is where you make your fun day to day purchases. Eating out, Novelty Socks e.t.c all come under spending.
• It is linked to the cheque button on your EFTPOS.This separates the frivolous purchases from necessities when you look over your accounts and see where your money is going.
• It is fed by BILLS, which has a weekly or fortnightly auto-transfer from BILLS to SPENDING.

CREDIT

• This account is either a credit card, or another account linked to another debit/Eftpos card (not the card that links to SPENDING and BILLS)
• It exists so that when you buy things for other people, it doesn't 'mess up' you tracking your spending.
• e.g if you own a credit card: you go shopping for your flat, you spend $250. You don't want to see that in your BILLS account, because it's not a personal bill. Instead, by using the credit account, everyone else in the flat of 5 can pay you $50, to your REIMBURSALS account, which is easily trackable, and you then move that $200 into credit. you can pay $50 into CREDIT from BILLS, and you can clearly see that your grocery bill was a personal $50
• e.g if you own a debit card: treat it like a credit card, load it up with say $500 that just sits there, and you can have the same system as above. The $500 becomes the '0', so that if you saw the balance was $450, you would know that someone needs to pay you back. You would then check REIMBURSALS, see that they had paid and tranfer the money from REIMBURSALS to CREDIT

REIMBURSALS

• REIMBURSALS is for people reimbursing you, so it doesn't get lost in your accounts.
• It makes it really obvious where the money is coming and going from. It also routes your money around the paystream system set up in BILLS
• If there's money in REIMBURSALS then you know you need to do something with it.
• e.g you pay for a friend's $30 concert ticket. If they paid you back through bills, the payment would get split, into BILLS, SAVINGS and TAX. Instead, the money gets spent, and reimbursed in one piece
• eg. I pay for 5 peoples tickets, $20 each on my credit card and mine as well, which costs $120 all up. 5 people repay me $20 and I transfer $20 from my spending account to REIMBURSALS. Then I transfer the 120 from REIMBURSALS on to the credit card in one payment, which matches the original purchase.

SAVINGS

• SAVINGS is your 18 week buffer for emergencies and financial security.
• Once you have an 18 week mountain piled in SAVINGS, you're ready to start building another mountain invest in a Term Deposit, or buy Shares e.t.c

TAX

• TAX ensures you have saved money for paying tax, if you're a contractor.

Sweeping

• To make sure that your Bills are always the first priority, you can enable Sweep. "If your balance falls below your minimum, money is swept back from another account, so there’s always enough for your everyday expenses."
• E.g Make sure that BILLS always has at least enough to pay your rent ($200). Set up a sweep of $200 from Savings when BILLS falls below $20
• You can also set up a sweep to make sure that an account doesn't hold TOO much money
• e.g Money over $500 in SPENDING gets swept to SAVING

Other Considerations

• remember to enter KiwiSaver, and pay for it if you're a contractor.
• If you have regular income, and it's possible, you should pay your bills such as Rent, 2 days after you get paid. That allows a day for the money to transfer if the system/person paying you messes up.

Good luck, let's win at this money game together :D $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$