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The Power of Financial Literacy: Removing uncertainty around your finances in one simple step

Picture this: the anxiety that stems from not knowing where your hard-earned money goes, living paycheck to paycheck, constantly questioning your financial situation. It’s a stress many of us are familiar with, and it’s far from a pleasant feeling. For countless individuals, it’s almost debilitating, causing sleepless nights and an overall sense of unease. The struggle to grasp personal finances is a common thread, one that often begins after leaving the structured world of education and stepping into the vast unknown of adulthood.

 

As someone who’s been entrenched in the world of business and finance for over 15 years, I’ve had my fair share of conversations with clients grappling with this very issue. The sentiment echoes: where do we even begin in comprehending our financial landscape?

 

Here’s the game-changer: Separate your money! Yes, I’m referring to the power of multiple bank accounts, a modern take on the envelope system.

 

Why, you ask? Excellent question!

 

It’s human nature to consume all available resources, a phenomenon known as Parkinson’s Law. Think about time: if you’re given two weeks for a project, it takes two weeks. Give the same project three days, and you’ll find a way to get it done in that time frame, often with more creativity and focus.

 

Apply Parkinson’s Law to finances, and keeping all your money in one account can lead to its rapid depletion.

 

The confusion and uncertainty arise here. You might wonder, “I make a good income,” or “My business is thriving,” yet the money seems to vanish as quickly as it comes in.

 

This is a common story among my clients. Even with budgets and regular financial reviews, they struggle to identify where their money goes, often finding it hard to pay themselves, ensure profit, or manage bills effectively.

 

So, how can we unravel this complexity? The solution is simpler than you might think: separate your money.

 

By distributing your money across various accounts, you give it purpose. You choose where it’s allocated and set goals—be it hiring new team members, paying yourself a steady wage, managing bills, or even funding a vacation.

 

The beauty is in the clarity and immediate access to information. No need for extensive reports or data gathering; your bank account balances show you exactly where you stand. A simple habit of logging into your online banking gives you an instant overview—aligning with how we naturally behave.

 

How can you implement this strategy? It starts with opening new bank accounts. Consider your current spending patterns and create categories. Begin with an Income account and a separate Expenses account. For businesses, this could be Operating Expenses; personally, it might include daily expenses. Having a dedicated card for this account encourages awareness and oversight, prompting you to evaluate recurring expenses and potential savings.

 

Following this, additional bank accounts can be created, tailored to different financial goals. In business, you might have accounts for GST, Income Tax, Owner’s Pay, and Profit. Personal accounts can include Savings, Spending Money, Medical, Rent/Mortgage, among others.

 

Choose fee-free and easily accessible accounts, avoiding unnecessary fees associated with multiple cards.

 

The magic lies in the process of transferring money. Immediately allocate a portion of your income to each account. This eliminates the guesswork when expenses arise; you’re already prepared.

 

Consistency is paramount. Weekly or fortnightly transfers maintain the flow. It might seem intricate, but the outcome is profound—unveiling financial clarity, controlled spending, and an awareness of any leaks or overspending.

 

Results? Astonishing. Clients with the same income started saving, paying bills promptly, and enjoying guilt-free spending. The process became a habit that diminished financial worries, replacing them with excitement over savings growth—a previously unimaginable reality.

 

This approach offers simplicity, empowerment, and purpose to your finances. You dictate the direction of your money.

 

For those seeking more, resources like the “Profit First” book delve into this approach. Remember, you can always access the first two chapters on my website: www.savvyofficesolutions.com.au.

 

In a world where financial ambiguity can be overwhelming, this simple strategy shifts the power back to you. It’s time to regain control and shape the purpose of your finances.