Habit Binge

Why you need exactly six bank accounts


We all remember our first bank account, whether it be the one set up for us by our parents long before we even knew what a bank account was, or whether it be the one we set up for ourselves when we scored our first jobs as teens.

Since those early years many of us have graduated to two, if not three bank accounts as our lives have changed.

Still, these are not enough to effectively manage your finances.

Money expert and author Victoria Devine explains why you need six bank accounts, no more, no less to be able to manage your money in a way that will see your bills paid on time and your future financial goals met.

Here, Devine explains:

First account

The first bank account you’re going to set up or rename is your Cash Hub account. This is the bank account that will have your income coming into it every week, fortnight or month. Ideally, this bank account shouldn’t have a debit card associated with it – and if it does, don’t keep it in your wallet.

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Woman paying with bank card
The first bank account you’re going to set up or rename is your Cash Hub account. (Getty)

This account is going to have all your direct debits attached to it, and will house the money that you need to cover your bills and other expenses.

Those who have a mortgage might like to consider structuring their Cash Hub as an offset account for their mortgage. This is where we start making your money work even harder.

Second account

The second account I recommend you have is called your Personal Spending or your Food, Fuel and Fun account. This account has a debit card associated with it, since this is the account that funds your weekly spending.

Each week on the same day you transfer your total Weekly Personal Spending amount calculated in your budget to this account. This is literally how I manage my money. I have mine direct debited and transferred into my account on a Thursday, because this is what works best for me.

Maybe you want your ‘pay day’ to be Mondays or Fridays. Whatever works – it actually doesn’t matter. This is the only account you will have moving forward that has a debit card associated with it, in order to minimise ‘money leakage’ and always be on top of your spending.

Third account

Your third account is your Emergency Fund. This fund is SO empowering and is the start of your journey to financial freedom and security. Yes, it’s an emergency fund – and we’ve all heard of those before. It exists because we can’t predict when we will get a flat tire, or need to pay an insurance excess or take unpaid leave from work.

But this fund is so much more than that – it is going to end up giving you the power to say ‘no’ to any situation, place, relationship or job you don’t want to be in anymore.

READ MORE: The mistake most people make when asking for a pay increase

Woman using calculator
Your third account is your Emergency Fund. (Getty)

Sadly, more often than not, finance is a big reason why people don’t change their situations when they really want to. This fund is going to become your back-up plan.

How much you have in here really depends on your life stage, your values and what makes you feel secure. I know people who have $2000 in their emergency fund, I know people who have three months’ worth of expenses in their emergency fund – and I even know someone who has THREE YEARS’ worth of expenses in their emergency fund. This is completely up to you.

But if you’d like a bit more guidance than that, personally I like the idea of three months’ worth of your bare basics expenses in an emergency fund, because if something serious happens, you can cover yourself until you’re either back on your feet.

If you don’t yet have an emergency fund, building this is your first priority before you start contributing to your short- and long-term savings goals.

If you’re currently in debt, smashing down your debt absolutely needs to be your priority. But consider allocating a small amount of funds to this account each month to help you sleep easier at night, and increase your contribution when your debt is under control.

Fourth account

Your fourth account is labelled Short-Term Savings. This is going to be for goals you’re planning to achieve in the short term, like going on a holiday, purchasing something big or planning to get married in 12 months.

This account should also be a fee-free high-interest savings account. If you’re currently in personal debt or have a credit card, you won’t be contributing to this fund just yet – because your main goal is to get out of debt before achieving other financial goals.

Fifth account

This is your Medium-to-Long-Term Savings account. This is where your funds for any medium- or long-term savings goals will live. This could be anything from saving for a home, working towards financial freedom or saving money towards the cost of having a family one day.

This money is going to be there for the long term, so having it in a high-interest savings account is a good idea; or you could talk to a financial adviser about some ways to invest your money if you wanted to.

Victoria Devine photo
Victoria Devine recommends six bank accounts, no more, no less. (Supplied)

Sixth account

Six accounts sounds like a lot, but I promise you there’s a reason for each one! This account is your Not an Emergency But it Still Feels Like an Emergency account.

If you can think of a better, shorter and sassier name, go for it. You’ll notice that I don’t have a ‘treat yourself’ fund – and I don’t for a reason. We’re here for the long haul, and I want any changes to your budgeting to be sustainable for you – which is why personal care, entertainment, dining out and clothing is included in your personal spending.

To me, budgeting is a bit like a diet. If it’s really strict, pretty bland and takes a lot of energy it’s not going to last, and at some point you’re going to binge eat to make up for what you feel like you’ve been denied.

This ‘Not an Emergency But it Still Feels Like an Emergency’ account has been really useful to me.

This fund exists because sometimes you want to go to a friend’s birthday dinner organised last minute, or you got invited to join in on an experience next weekend – but you don’t have the money in your everyday account to do so. I strongly discourage dipping into your savings, and this is how I mitigate having to do that. In my mind, once your money is in your savings account it shouldn’t come out again until you’re achieving that savings goal. If you create the habit of pulling money out of your savings when you want something, you’re not putting Future You first.

READ MORE: How to save (and make) money in lockdown

She's son the Money by Victoria Devine
She’s on the Money book cover. (Supplied)

This account exists so you don’t have to miss out on the things that are important to you – not so you can blow it all because you deserve to ‘treat yourself’ following a bad week at work. That mentality is negative, and actually puts us in a worse financial position. After a bad week at work you’re going to sacrifice Future You? I don’t think so!

So, before taking money out of this account I do want you to think about it, because it does have to be replenished at some point, but it’s my way of making sure you’re not missing out. Savings and good money habits unfortunately don’t come without any sacrifice. While you won’t be able to rely on this fund every weekend, having it ticking over will mean you can still treat your-self without sacrificing your savings and investment goals. After all, we’re millennials and we want to have our smashed avocado and eat it too!

Personally, at the end of every week (my money week being Thursday mornings) I transfer any additional cash I have left in my Personal Spending account into this fund to top it up. That way I can top it up without sacrificing my savings goals, and each week I get to start my personal spending on a clean slate.

This is an edited extract from She’s on the Money by Victoria Devine published by Penguin Random House, RRP $32.99


Read More:Why you need exactly six bank accounts