Personal Finance Apprentice

Savings Accounts And The Envelope System

You often hear about the envelope system and even the jars system. They're very effective, and I'd recommend them too. However, there are times when they might not be that practical implementation wise. I mean, are you really going to keep envelopes or jars of money at your house, while your away at work all day? Is it safe(r) to put them in your bag and carry it everywhere you go? Of course, you could use those envelopes and jars initially, to budget your money and then transfer them to your savings account, or pay/send the money wherever it needs to go. Personally, I find it easier to have several savings accounts to take the place of envelopes and jars. They're insured, earning interest (albeit paltry ones), and with online banking, your budgeting is just a couple of clicks away. If you couple that with a checklist, budgeting and allocating your money is fast and easy. (Note: just be sure to choose accounts that have low maintaining balances, with easily accessible atms, and doesn't charge per transaction. I personally prefer to re-use old payroll accounts, but if you look around there are good alternatives too.)



Savings Accounts And The Envelope System

In
today’s post, I’d like to share my own version of the envelope
system. I’m sharing it mostly because I think it’s a more modern take on
the traditional style of using a paper envelope.

Now,
I’m not saying it’s better. In many ways using actual envelopes has its
advantages. But this way might appeal to tech savvy people or the
younger generation who are more used to computer screens.

So what’s my version?

Essentially, I’m replacing envelopes with payroll and savings accounts that are accessible online.

(Yes, accounts.
I’ve had a few jobs, and employers rarely take the time to close your
account. Instead they just stop putting money in it. And you get to use
it as you wish. After all it is your name and signature on the account
details.)

I have four accounts. And in my opinion four is the minimum, though you can add more as needed.

  • Payroll Account 1 is from my current company. This is where I keep my weekly allowance.
  • Payroll Account 2 is from a former company. This is where I keep all
    the money that is meant for paying bills. I’ve gotten by with just one
    so far, but this can be increased as needed.
  • Savings Account 1 is for paying myself. This is where I place my savings. For convenience this is also the account that I use to fund my
    investments for mutual funds and stock trading.
  • Savings Account 2 is for my emergency fund. It’s important to keep
    this separate to avoid the temptation of taking money from it. 

Why do I use payroll accounts instead of savings accounts?

Savings accounts require maintaining balances. And it’s usually 2,000 – 3,000.
If I used savings instead of payroll accounts, I would have 4,000 –
6,000 sitting in the bank doing nothing. I would rather invest that
money than leave it in a low-interest savings account.

On the other hand, a
payroll account could have no more than 1 centavo and not incur any
penalty (Although if it goes down to zero, I believe the account gets
closed).

(Update: A payroll account can have zero in it and not get closed. However, Metrobank will now convert payroll accounts into regular savings accounts if there is no payroll credit – salary – credited to it in 180 days or 6 months. So find another bank, or maybe just use a different account type.)

If you don’t have several payroll accounts,
some banks now offer savings accounts with no or low maintaining balance
requirement – just be sure to check if they charge you per transaction (including deposits!). I think some might not pay interest. But that’s ok if we
just use it to hold money for paying bills.

However,
the most important thing is that they have online access and that at
least some of them are in the same bank. Ideally they are all in one
bank, so you can view all of them at the same time; and with just a few
clicks you can transfer your money as appropriate.

For
me, my payroll accounts are from one bank, and the savings accounts are
from another. It can be tedious to transfer money. But I just look at it
as extra protection against the temptation of spending my savings.

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