Welcome to Cheap Finance Online. The main purpose of this site is to offer advice and information on Finance, how to manage
finances, how to apply for loans, what loans can be applied for and what the pitfalls are when taking on finance/loans.
Background
Unfortunately for most of us we go through the best part of 18 years of education but never get taught the basics of managing
our income, savings and general finances. This is one of the main causes of personal debt – bad financial management. Of
course the banks are interested in the populace learning how to manage their money, as they get their fees from the overdraft
facilities, personal loans and fines for going overdrawn or overspending. In days gone by the average worker was paid in cash
once a week. If you ask older people they will tell you that they would have different boxes to divide the money into, one
for the electric, one for the gas, one for the rent, one for housekeeping. Yet when we get our first job and open our first
account the banks only advise on a current account. Where is the account management that replaces the boxes on the
mantelpiece?
Bank Accounts
Bank accounts do provide a safe and easy environment in which to keep our money. These days it is becoming rarer that cash is
actually used to pay any bills. With debit cards, direct debits, standing orders and ATM transfers even cheque books are
becoming an historic item. So what is the best way to operate a bank account? The first rule is understanding that there are
three basic parts to an individual’s personal finance – living expenses, savings and disposable income. These three parts
should also have a bank account to represent them. Let us look in more detail the type of account to use for each:
Living Expenses: Ideally an account that allows for direct debits to be paid from it, and offers interest on the money in the
account.
Savings: Accessible within a month with the best rate of interest available – bank book only, no cards!
Disposable Income: An interest bearing account that has no overdraft facility and can function with an ATM/Debit card (avoid
linking a cheque book or credit card to this account)
Set Up
Once you have the three accounts set up, have your salary paid into the Living Expenses account. This is the account that all
your bills, your mortgage, car finance, insurance payments and any other fixed payments needs to come from. Ensure you know
the total for the month. If you have interest available on the balance arrange with all your creditors that the direct debits
will be paid to them on 28th of each month. This will ensure the money stays in your account as long as possible to gain some
interest – if the bank are offering it then maximise on it!
Decide on the amount you wish to save each month. Have this amount transferred the day after your salary hits to your savings
account. This will ensure you make savings before you pay bills – pay yourself first, or else why do you work.
Whatever amount is left from your salary after the transfer to savings and allowing for all your bills to be met transfer to
your disposable income account. This is the money you have left to live on for the month. Once it is gone you can’t buy
anything else. If you do desperately need more money, then take it from your savings account. Do not “borrow” against the
money in your Living Expenses account – as this will cause you to go overdrawn and start on a slippery slope.
Conclusion
If you organise your basic finance along these simple lines and follow the rules then you have a great chance of being in
control of your spending, in control of your expenses and be able to make some savings.
Recommendations
If you are reading this and thinking “I should’ve done that and I wouldn’t be in this mess now”, then do not give up. Take a
trip to the bank and open the other two accounts. Work out what you fixed bills are for living, work out your payments on
loans and work out an amount that would be realistic to pay back an overdraft over the next 12 months. Decide to pay yourself
first – your debtors will be happy if you keep making regular payments that reduce your debt month or month – pay an amount
into your savings, even if it is as little as 5% of your net pay. Arrange with your creditors for your payments to them to be
realigned to a more realistic amount. Then make sure you live on the money in your disposable account only. Very soon you
will see a marked improvement in your financial control and situation, plus a good deal less stress than before.
