 |
Banking PlanWritten on the 5 December 2023 by Dean McKinnon To successfully develop and maintain your financial goals you need a plan. If your plan is too complicated it may be difficult to maintain, so you need to make sure, as best you can, that your plan is robust and will require little ongoing effort from you. All financial plans require monitoring of both income and expenditure, especially in the 'accumulation phase' when you will most likely have to rely on earned income (i.e., employment) to meet your expenditure. It is quite easy to spend more than you earn and this will likely lead to increasing debt and will probably lead to decreasing net wealth (total assets less total liabilities). The key to ensuring you do not spend more than you earn is to have a Banking Plan. There are three main components of a Banking Plan:
Expenditure BudgetKnowing how much you spend, or at least putting an effort into understanding how much you think you will spend, is the key to successfully managing your finances. If you do not know where you spend your money, how will you be able to manage your income successfully? The Expenditure Budget is likely the most confronting aspect of financial management because quite often we do not comprehend where our money goes every week. A detailed Expenditure Analysis is required to not only understand how much you spend, but most importantly, on what items do you spend your money. Whilst completing a detailed Expenditure Analysis may sometimes be daunting, being in possession of that knowledge is the first step in taking control of your future financial wealth. Bank AccountsA lot of us tend to have numerous bank accounts that we think will make it easier to budget our money. A bank account for Christmas holidays, one for our annual holidays, one each for the kids, one for the pets, and the list can go on. Pretty soon you have so many bank accounts that you lose control on how much money you have and whether you have enough to meet your planned expenditure. To easily implement your Banking Plan you should have no more than three or four bank accounts to manage your regular income and expenditure, as well as ensure you have enough money for your bills, holidays, and any other special goal you may have. Limiting the number of bank accounts you have will make it easier to maintain a level of expenditure you have set for yourself, and at a glance you will be able to determine if you are within your budget. For example, say it is the end of the week and you feel like going for an unplanned night out, but you're not sure if you have enough money in the budget to pay for it, so you quickly look at the balance of the bank account nominated for such expenses and to your surprise you do! Of course, if you don't then it's a night in for you ... Automatic TransfersSetting up Automatic Transfers to manage your Banking Plan is the surest way of sticking to your Banking Plan. Each time you receive your pay into the Bank Account you've nominated for income, automatic transfers based on your Expenditure will be transferred to those Bank Accounts you have designated for paying bills or saving for your other special purposes (think 'holiday' or 'Christmas presents'). Automatic payment of bills is also a great way to ensure your bills are paid on time. A properly constructed Banking Plan will have included provision for regular bills and if you've set up auto debits with the supplier (e.g., Origin Energy; Telstra) you won't even have to think about if you've paid the electricity bill because you'll know that you've planned for the payment of this bill. Peace of mind knowing your bills will automatically be paid is a great feeling. Developing a Banking PlanIt can be difficult to properly understand your finances and then use that information to develop and maintain a Banking Plan, so if you need help please don't hesitate to Contact Us and arrange an appointment to discuss your requirements in detail. Author:Dean McKinnon |
