You’ll need a primary bank account, an everyday transaction account with no fees.
Your income (salary) will be deposited into this account periodically. For me, it is every week.
And from this account, money will flow out to various other accounts such as investment, savings and any other sinking funds you’ve set up to help you save.
This part can be as simple or complicated as you like.
My setup is fairly complicated because I like my Emergency Fund to be in a different bank account (BankWest) to my everyday transaction account (ING). And preferably to be earning a higher interest rate.
I also like travelling overseas. So I have an account with another bank (HSBC) that has a debit card that can store different currencies. My travel fund is also at HSBC. it is easy for me to transfer money to the debit card account wherever I am in the world.
Decide how many accounts you need according to your lifestyle. Open new ones if needed. Nominate the purpose of each account.
A word of caution here – be aware of the hoops or rules each bank imposes in order to get a bonus interest, for example. But this is also where automation is key in helping you meet the criteria.
For example, in order for my Emergency Fund to earn bonus interest, it must grow every month without any withdrawals plus the transaction account linked to it must have $2000 deposited every month.
Therefore I schedule $500 to be deposited weekly into this account. And from this account, an amount is transferred into my Emergency Fund (even though it is fully funded). This extra amount will be transferred every 6 months to other sinking fund accounts. This means that the Emergency Fund will earn the bonus interest for 10 months of the year.
Great post, and I feel like automation definitely eliminates any sort of self-control or discipline issues.
It might actually take more discipline/effort to prevent your automated money flow once you’ve set it up.
Reminds me of “I Will Teach You To Be Rich”‘s chapter on automating your investing, which’ll also help the investor become more ‘passive’ and not be susceptible to be influenced by Mr. Market by looking at it too much.
Reading “I Will Teach You To Be Rich’ made me tweak my money flow a little – transferring money directly into my brokerage account (Pearler Autoinvest account) and setting up an “Invest in Myself” fund. And that’s the key with automation – you still need to tweak it every now and then. And you’re right, once it’s set up, it’s passive and just works.