Benefits of having different types of accounts

Do you find it hard to track where your hard earn money goes to? At the end of every month, do you keep asking yourself why its so hard to save any money for the month? Fear not, you are not alone. This is a very common scenario for a number of working adults. To overcome this problem, financial experts advocate splitting your monthly pay into several accounts once you get hold of the money.

Pay yourself first

The very first account is your "saving" account. Every month after getting your pay, you should immediately take out a portion of it and put into this account. Regardless of how small the amount, "paying yourself" before you spend the rest will allow you to slowly accumulate savings over the long run. Ideally, you should save up to the point where you have 6 months of living expenses. Thereafter, you can consider channelling the excess to the "investment" account.

Invest for the long run

Reader of this blog will know what I am a strong believer of investment. Depending on interest rate of savings account will never be enough to fight inflation in the long run, so its better to invest the excess to enjoy compounding effect. This is especially useful if you are young and can ride out the investment cycles along the way. Therefore, as more money start to fill into your "investment" account, you can slowly opt to invest them. I have also written another article on regular savings plan, where you pay a fix amount every month to invest in a financial product. You can check that out.

Enjoyment fund

After paying yourself and spending for the month, if you have any left over amount for the month, you can then set it aside and transfer to the enjoyment fund. I always think that its best you save up for things that you want, be it the latest gadget or your dream holiday. Its always unwise to take up debt and credit for enjoyment purposes.




After this, the whole cycle will repeat itself in the following month. Therefore, by following this, you will be sure that you will always spend within your means and not overspend.