Automating My Personal Finance through 3 Bank Accounts
FREEDOM OF TIME IS THE ULTIMATE ASSET IN LIFE.
How It Started:
I started investing during the lockdown(As most youngsters in India). I started learning a lot and started spending a lot of time learning about personal finance.
I started reading a lot of books like Rich Dad Poor Dad, Psychology of Money(Highly Recommended — one of the best books if you want to know about personal finance), Think and Grow Rich, etc. Started doing courses from Varsity on how to start investing. Got to lot about different financial terms like assets, liabilities, and how businesses are run. Started following a lot of case studies as well. Started watching a lot of online videos like Ankur Warikoo, Akshat Srivastava, etc. Learned a lot about cryptocurrencies. You can see this from the image below. (There are around 10 pages similar to this.)
As much as I was loving a lot what I was doing, It started Impacting my job, and my life. I was not able to focus on anything else. Then I started thinking of creating a system for myself so that I can focus on my life and my system of investing will take care of itself with minimal effort from my side i.e 2 hours per week through my phone or laptop.
System :
Have 3 bank accounts.
- One for money Incoming
- Second for money outgoing (Expense Account)
- Third for Investing.
What happens is, that whatever money I will receive from different sources(apart from dividends), will go into my incoming account. Then, I will send some money to the investment bank and designate money to an expense account. I live by the following principle for now.
Expenses = Income — Investments
This helps in keeping a check on your expenses as you are aware of how much money is going out of the system(As you are doing it every week). You will automatically spend less if you know how much money is going out of the system. Also, No need to spend time on every expense you make. You automatically know how much money is going out of the system.
I plan to invest for a long time. I do not plan to use this money any time soon. My Investment account keeps a check on that as well. Whatever Money I will receive, be it through dividends or by selling the stocks or mutual funds or cryptos, I plan to reinvest it in other asset classes. This Keeps a check on my mind that this money is not for me to use. (Long Time Investing is the key for me). Now where to invest is up to you.
Know the basics and prepare for emergencies first.
- Buying life insurance and health insurance has been a game changer for me. I know I can take more risks now as I know my emergency situations are covered. (It’s not that I do it all the time. It’s nice to have a backup). Ditto is a great platform to start. They are awesome.
- I treat my taxes as expenses(As they are going out of the system). So It is wise to reduce it as much as you can control. I know it is very daunting to learn about taxes. I would recommend learning about major points on how the tax system works. It will help you immensely. I personally enjoy learning about taxes a lot. If you know about your taxes. It can increase your income automatically. Platforms like Tax Buddy or Black do it automatically for you. I personally have a lot of CA friends. They help me with my taxes. The 3 bank system helps in filing ITR as well as you know how much money is coming into the system. Apart from the dividends from the investment account. Which you can directly get from apps today.
- Keeping your 6–12 months expenses aside for your emergency purposes in any FD or auto seep (Take out anytime) gives you a great leeway to take more risks as well.
- Know How Credit Card Works — Knowing how a credit card works or how lending works will help you immensely in the future. How they lure you into using a credit card will help you in using a credit card wisely.
- There is an auto sweep option in major banks that provides you the interest of an FD in your savings or current account will definitely help you in giving better returns.
Deleting all your apps and websites from your phone and laptop
Once you start your process of investing, I am pretty sure you will start looking at stock prices going up and down. You will become hooked to it. (At least I did initially). The only way to come out of it is by deleting the apps from your phone and only installing it on your money handling time. I recently watched this video by Pranjal Kamra which helped me a lot. I was thinking about the same thing and this video reassured me to do the same thing. Now I do not have any apps on my phone. I only open it while I am in my money handling time.
Final Thoughts:
This is a system that I have curated for myself. These are basic principles that I personally adhere to and it helps me in creating a financial system that I know will work for me for a long time. I personally have to spend only 2 hours of my week(Every Fri — I sit and analyze what should I do and the system is already there. I only have to execute what I am thinking). If it feels daunting at first, just take 1–2 points and start applying them in your life.
PS: I know I would not able to create a system without having all the basic details that are required to create this system. SO, I was able to create this system because I spent time whether it is reading books or watching videos, or doing any courses. So before you start to set out your system, I would recommend nailing the basics first and start thinking about creating a system that works for you.
If you have any questions or any feedback you want to share comment. Hit me up on LinkedIn or Twitter. I am pretty much active there.
Thanks,
Piyush Jain
