Hacking Budgeting with Multiple Bank Accounts (My Ultimate Strategy!)
In episode #72, we share with you how to hack budgeting with multiple bank accounts. Budgeting goes beyond a Mathematical formula, the psychological elements and daily habits are rarely factored in. Most of us use only one bank for every purpose. Our savings, investments, expenses all go to that one account. It seems to simplify our finances. But in fact, it complicates it. Tune in as we explore how to use multiple bank accounts for better budgeting and how it can help you better manage your money.
It was quite a revelation, right, when I realized that this is not something that many people do. In fact, many of my friends only have one or two bank accounts. And, you know, in this world, there are some stuff that everybody assumes like, okay, this is how everybody does it, right? Or at least that’s what I thought.
And definitely, clearly, that’s not the case. And I’d be wanting to talk about this for a while now, since I’ve observed this phenomenon. So in 2021, to start this year and on a theme on starting well in January, I’ve decided that, okay, I’ll share with you guys how I manage my money with four bank accounts. Why do I do it this way? And what are the benefits in today’s environment? Welcome home.
So good morning, everyone. I welcome you to another day with the Financial Coconut in our podcast, debunking financial myths, discovering best financial practices, and discussing financial strategies that fits our unique life–you get it—ultimately empowering us to create a life we love while managing our finances well. And in today’s topic, we’re going to spend some time to talk about how I budget using four bank accounts and what are the benefits of it.
So, yeah, it didn’t occur to me that this was an anomaly and I’ve been doing this for like, I don’t know how long man. It’s been like seven years or was it…. yeah, seven to eight years since. I’ve read it somewhere, I can’t remember exactly where, but someone talked to me about like how… you know, some book talked to me about, like, how to budget.
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And since then I was like, okay, if this is the way to budget, then I will open four bank accounts to budget them. And of course, over time I’ve refined the use of these bank accounts and what do I exactly use them for. But it’s most shocking to me to realize that a lot of my friends only have one bank account, our two bank accounts, at best three.
And it’s okay if you have three, I think three, it’s a certain standing, but especially in a world today where, you know, there all sorts of e-wallets and everything and people are like, aiya, one account can do everything already ma, everything can put into different wallets. And that is not wrong, that is true, okay. Because these days, there’s so many wallets, right? Google just have their new wallet going on. But yeah. It’s definitely interesting to know that it is not common, but it’s been serving me pretty well. So I thought like, okay, I should share with you guys, since many of you guys are asking about like, eh how do you budget? How do you budget? How do you budget?
So of course over time I have reach a plateau in terms of how I budget, because I don’t innovate on how I budget anymore. It’s just become a thing. It’s just a thing that I do day to day. And I think that is sometimes the flaw of being so process oriented and so good at doing it already. You don’t even think it’s a thing, but because you guys asked, so I was like, “Oh, okay, it’s a thing.” And so I’m going to share with you.
Of course, I have my reasons why I do this and what are the benefits of doing it this way. But before that, I definitely have to share view. Well, I actually do, right. So I have four bank accounts, right. For a really long time. And it is interesting because they all serve a very unique purpose, or over time they have refined to serve a unique purpose. So what do these four bank accounts do? So. The first bank account, it’s a cash flow account. Essentially everything flows in here before they get trickled elsewhere.
So they get trickled into all the other bank accounts or they end up in my PayLah or my other e-wallets. So this is the one stop account that everything comes in to and flows and probably flows out into the other accounts, to then be disseminated into whatever purposes that they serve.
And the number two bank account is an investment account. It’s binded to all my brokerages and my investment platforms. This gives me a lot of ease to track, right? And a lot of these brokerages and investment platforms, they want you to , for lack of a better way to put it, always use one account. They tend to want to, you know, have you use one account so that when they disseminate the funds out, it’s also easy. So I have one dedicated account for investments.
The third bank account, it’s for savings, right. So the savings bank account, I think I touched about it pretty extensively in the very, very, very early legacy episode. It was episode four: how much should you save. And that’s served me very well. I use Maybank because they don’t really have a lot of ATM’s. So it helps [laughs] and they are still very backward in terms of their whole digital banking thing. So the idea of savings is to not have it too readily available, right. So it is what it is.
And of course there is the number four bank account, which is my splurging account. Splurge, ah. It’s for me to splurge. Yes. I will share with you more later. So how do these things work? All my money comes into my cashflow account, which is my number one account. And then about 10% immediately goes into savings, okay. It started as a little bit more, but 10% goes to savings and about 40% goes to investment. So essentially I immediately segregate 50% of my income out. So they don’t flow into expenses. They just get out into investments and savings, right. So they fall out of my consumption game. 50% of my income.
You can start with 30% savings or 50% savings, right from the get go first, right. Until you accumulate your emergency fund, you accumulate all the savings benchmark that you hit, like, with your one year tide through, or your three years, however you want to, before you then pivot some into investments and then continue to trickle a little bit into savings.
I think that is where I am, right, where 40% of my cashflow goes into investment and 10% goes into savings. So why do I do that? Okay. There’s a period of time when I do it even crazier. I have about 70% of my income out of consumption. So they go into savings and investments. They don’t participate in any consumption activity.
But that was the days la. I think now I want to enjoy a little bit more and spend a little bit more. So that is where I am, but why do I do that? A quick note, right. I came from this very simple idea that for every dollar that I make, if I only spend 50 cents, assuming my income expenses stays pretty constant, you know, adjusted for inflation, all the assumptions, I can essentially work 20 years and live 40 years easily within my means. There’s no big problem on that.
I know, I know some people are like, “Whoa, whoa, whoa, what about property prices going up? All the massive inflation and blah, blah, blah?” And I’m like, okay. Yeah, not impossible. Not wrong, okay. So that’s why I invest, right. I want my money to align, at least be in line with inflation or meet up with modern day prices. And that’s a whole different discussion for another day. But the central idea when I put 50% of my money away is essentially this. I only need to work 20 years to live 40 years. And over a period of time, I have more and more negotiating budget to, you know, not be afraid of things, right, in the broad financial idea.
I always tell people that you know, you can be a teacher, you can do whatever you want to do, but be a financially smart teacher. Because when you have money, then in the grand scheme of capitalism, you can negotiate with your boss. You’re not afraid of getting fired.
So then that kind of gives you more liberal, more room to innovate and create, and potentially get fired. But in that sense, you took the risk, you may get promoted. But that’s a whole different discussion, another time.
So other than investment savings, I have a fourth account, which is a splurging account. And that accounts for about 10% of my cashflow. For every dollar I take 10 cents to do, whatever weird things that I want to do. Or whatever things that I enjoy, I indulge, that is not really for survival. And I buy whatever I want to buy. The idea is to empower myself to splurge, and I made it feel more comfortable to spend money without needing to worry about breaking the bank or any longer-term financial future. Of course, over time I have found it very hard to spend this 10%. That’s a story for another day.
But that leaves me about 40% remaining bills, insurance, expenses , which as a young man dating, having a job, you know, it’s very workable for me. But that’s not to say it’s the same for you. This is not a financial hack for you, but I’m giving you some sense of how I distribute my cashflow and how you can possibly structure your budgeting flow with this four bank account strategy. So think about it.
Okay, so to quick sum-up yeah, I have four bank accounts. 100% goes into the cashflow account, the number one account, and 60% leaves this account, right. 10% goes into saving. 40% goes into investment, and 10% goes into splurging. Of course, percentages can tweak over time based on your financial goals, but this is where I stand for now.
And what is the benefit of managing it in this way? Having so many bank accounts, go and queue or open bank account–actually these days you don’t need to queue up, you know–but one of the major benefit of having four bank accounts is that you have a broadly segmented financial pool, right? It gives me a lot of clarity and reduces unnecessary thought bandwidth when managing my money.
I’m sure we all have some vague financial goals that we want to achieve. As we explore our lives, we may at various points, have some clear stuff that we want to achieve. Start buying our own home, growing our retirement pool, you know, pursuing a certain program, buying a certain car or you’re setting up a family. Whatever it is, you know, if you put all these goals into one unique account, okay, do only one account, it’s going to get really messy.
You’ve got to think like, “Oh, okay. I got this 100,000 in this account, 10,000 is going to my mortgage, which you cannot really buy much, maybe about 30-40,000. Another 20,000 is going to my car…” And you know, the idea is you put everything into one . You know what you are doing? You are eating into your savings and spending your investments [laughs] and that… It complicates stuff. It makes things very messy. And you’re putting everything into one drawer la essentially. And some people will be like, “But I can mah, I can mentally do it.” Yeah, yeah, of course you over time, you have done the same way again and again. So of course you can, right. But when things pick up, right, when you, when life gets a bit messier, when you’re going through a lot of changes, hey, the additional clarity and the reduce in the thought bandwidth is very important.
That is how I see it. So when you have broadly segmented financial pools. It helps you. A lot clearer. You know what you’re doing, you don’t need to mentally think, like, remember how much, how much, how much. So I think that’s a great way to start, right? The idea is not the unique four bank account. You can go up to six, you can do three, whatever. But the idea is to separate your financial pool and gives you a much clearer picture to work with.
Which brings me to the second benefit of having four bank accounts in today’s world. And that is, I have engineered some inconveniences into my finances and that is extremely important in today’s world. Maybe 10 years ago, not as important, then in today’s world. it’s extremely important.
There was a time when conveniences was hailed, right? All hail ease and speed. And you know, very easy mah, very easy to start, right. But I think we have reached point where things are so convenient and seamless that it’s a little bit scary. I can set up my brokerage account in 10 minutes, okay: connect my Sing pass, PayLah my money, and let’s roll. This seamlessness is only as good as we can shepherd it la, for lack of a better way to put it. You know, kind of like social media, okay. If we are shepherding our social media, then hey, all well and good, right? We are playing the game. We know how to do this thing. And we can get a lot of good juice out of it. We write very attractive snippets, draw very nice stuff, and you know, we connect. A small time local podcast celebrity is telling you this, ha ha ha [laughs]. But if social media was shepherding me, and I wasn’t shepherding it? Because of all the dopamine mechanisms, with the notification push or the sound vibration, hey, what your friend is doing. It becomes very dangerous because it infringes our lives and attracts us into this like kind of trance state of social media consumption, which I think most people have gone through something like that. It’s like, you know, you just keep swiping and swiping and swiping and scroll, scroll, scroll. And then after that two hours gone already.
And so to me, right, I am human too, and I know how powerful these emotional drivers are. So to prevent that, I believe that I need to engineer some inconveniences in my money pools. So I want to set up walls and segregate it a little bit, much like how I stop myself from eating too much ice cream. Because I’m a stress eater. And especially, I love this ice cream called Crunch, just saying. And when I’m very stressed, you know, I will buy it and I’ll eat it. And it kind of makes me feel a bit better, right. So #stresseater mah, right. And it’s actually very cheap, very available.
And NTUC, you can buy a pack of four and I could bring it home, chuck it in my freezer. But every time I do that, okay, I actually reduce my benchmark of getting the ice cream. Which means–okay, I know it’s very hard to measure–but usually, maybe when I’m 80% stress, I will go and hunt for this ice cream and I need to get down and go to the mamak shop and buy that one thing from this aunty, who is extremely unreliable because she doesn’t open on time every day.
But anyway, if I bought the ice cream and put it in my freezer, maybe at 40% stress level, I will already go into the freezer and eat already because it’s so easy. The ease of consumption is there. Right? So over time I realized I cannot do this. So I never bought the four-pack of, you know, Crunch from NTUC anymore.
I only buy one ice cream when I go to the auntie downstairs, whenever I really need it. And same for personal finance. You know, I don’t want everything to be one account because I know when there are days where I will be like, okay, let me treat myself a bit, okay. I’m not feeling too well, I want to get a little bit of a dopamine rush, right.
Or my friend will tell me, “Eh, you want to hop onto the bar for a drink?” Or, you know, I see some share prices come down and am considering to capitalize on it. And if everything is in one bank account and with all these ease right. With all these like attachment, all these API, all this backend, and you didn’t realize right. A lot of database, a lot of backend database are being shared around. That’s why it’s so easy. You can just click, click, click and then you can go in and you can start and you can get rolling on your investments.
But all these things, because we are human, I want to reduce all that ease to prevent my emotional outburst. I don’t want to feel like, oi, I need to invest in that one because the stock price come down and then, you know, I easily eat into my savings. I easily eat into my splurging account or whatever cashflow for the month. And I feel very painful. So there are multiple judgment calls, of course, when you are trying to maneuver your money around.
So having this segregation will give you the breather, you got to breathe because you got to transfer money, right? So you gotta like think, wah, do I really need this? And then you got to transfer the money or, you know, and you have to do some steps rather than just click, click, scan your face, and then let’s go. Like that. So to me, right, the four bank account strategy or having that separate financial pool helps me in thinking and taking a breather. Mai kanchiong, okay.
And of course, it brings me to my third point, which is the splurging account. Okay, the splurging account needs special mention, right? Because in my view, the benefit of this four bank account strategy that I have, the splurging account forces me to think what I actually need, you know. Do I need this for survival or do I need this to thrive?
And you can see that in some ways you can set up different bank account to focus on something. It is not to say that you need a splurging account. You can also have a family account where you build your finances, focus on your family goals. And you don’t need… not everybody needs to splurge, okay. Because I think at some point, if you already have a decent understanding of personal finance, you at least have three la: random cashflow account, savings, and investments at the least. At least that’s what I observe with people that are, you know, “financially woke.” I don’t really like to use the word, but yeah. Quote unquote financially woke. But I’m especially proud of my splurging account because it has given me tons of value over time.
Let me just digress a little bit and talk about the concept of want versus a need, which is very peddled la for a very long time. And people try to tell you that, eh, your time at a bar, your iPhone, and your facial are wants and not needs. And I honestly question which angle to these people come from because everyone has their own unique needs. And the time at a bar serves a social need, the iPhone serves a need of keeping up with the times and maybe the facial serves the whole need of self-care. And so over time I no longer see things as needs versus wants because that gave me a lot of headache la. And I think actually everything at a certain level is a need.
So I have now a different classification, survival and thriving needs. And I think it’s a lot more intuitive. What I need to survive and what do I need to thrive? So definitely there are still gray areas, things like insurance or something. Do you really need it to survive? You know, I personally think in modern times, broadly speaking, yeah, you do need but of course to me it is about relative, right? Relatively it’s a much clearer framing from survival and thriving compared to meets versus wants, right.
So my splurging account has helped me focused on my thriving needs, that one off Sentosa brunch, that board game pot luck when I hang on my friends, the gift for a friend I care about, the cup of coffee that I buy for others that I never ever drink alone. And these are the things I see beyond survival, because I don’t need them to survive, you know, but by establishing this one account, this splurging account, it has been an ongoing exercise to ask myself, what do I need to survive? What I need to thrive? Should I use this bank account or should I use my cashflow account? You know, so it’s, it’s very interesting because this exercise over time has helped me find what do I actually need to thrive?
And I actually find it very hard to splurge these days because you know, I refined a process. I find better, better things to splurge on that gives me more value at a cheaper price. But that is not to say… like I said, you don’t need a splurging account. The idea is you can set a fourth account, a fifth or sixth account, for you to dedicate bandwidth to optimize and achieve what you want to do.
So I’m going to sum up today with the three benefits of using a four bank account budgeting strategy. Okay, I’m not saying you need to have four, but if just so happens you enjoy this four bank card strategy. The number one benefit is you have a broadly segmented financial pool. You don’t put everything into one account. It’s much easier, a lot clearer. It reduces unnecessary thought bandwidth.
And number two: you engineer some inconveniences into your finances, especially today where everything is so seamless, a facial scan away, a touch away. You know, you want to engineer these inconveniences to give yourself back some control when you’re, you know, emotional or being triggered by your dopamine.
And number three is my splurging account, right? Forces me to think about what I need to survive and what I need to thrive. So establish that one other account for a particular thing so that you can then optimize it because you have a special, dedicated bandwidth for it. So I hope you can budget your life better and I hope you achieve your theme for this year. So I hope you learned something useful today. See ya.
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Test test. So yeah, I hope this is insightful, interesting. And you may want to set up a few bank accounts if you are the one with one or two accounts. So I think this helps, and I hope you get the kind of thought as to how I see certain things, right. It’s not all, you know, you cannot really just see finance in the numbers perspective.
At some point there is some sort of life perspective, ease of execution and whatnot. So all those things they do add up and in this week’s episode, this Thursday’s episode of Chills with TFC. We have an interesting person: Christopher Tan from Providence, pretty famous guy already. I think a lot of interviews out there with him already, but I got him on to talk about, you know, how to insurance, because it’s not something that I’m very good at.
So in the grand scheme of personal finance of starting well, I think insurance is already a very given topic. You know, it’s already, for lack of a better way to put it, it’s an accepted narrative that you must have insurance at some point in time or at some level. So how to insurance? Should we buy terms? Should we buy life? You know, and they actually do fee only. What is fee only versus commission?
So I think he has some very interesting thoughts and, you know, he talks about… Because in financial planning, I think everybody has their own idea. Whether you want to fire, whether you want to YOLO, or you want to whatever. So he has some of his own theories, his own thoughts, and I was very happy to spend time with him. Very smart guy. And I hope you learned something useful this Thursday during our discussion.
And for next Tuesday! Next Tuesday, TFC Tuesday , I’m going to share a view. Why I bought my term insurance. So because, you know, as a new year, I thought like, maybe I should sort out this insurance part also. And people are like, “Ha? You never buy insurance before that?” I was like, yeah, I don’t. Because I don’t understand it, but now at this point in time I have decided to buy my term insurance. And I’m gonna share with you next week, okay. Next Tuesday, you will know why I buy term insurance and not life. And why now. So stay tuned for the next few weeks and I hope you learned something useful. See ya, take care.
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