Limit your spending with a separate dedicated bank account
Set up a separate DEDICATED spending account to limit your discretionary spending
Sure, that sounds good. But why and how? When is a good time to be deliberate about saving money?
It’s never too late to start. Building up savings mean you have something to draw on when your dog gets sick and has a huge vet bill, or when your partner can’t work due to an illness for a longer time than you anticipated. It’s called having financial resilience when you have a back-up emergency fund. Without some savings behind you, you’re seriously winging-it 🧐.
One report in 2023 from Employment Hero found 46% of Australians struggle to pay for food 🍕 and rent 🏡 before payday. So, you’re not alone. A lot of us Aussies are simply spending more than we have. High impulse spending today means there’s less money to put away for the future. 💰💰💰Not having enough money for the future makes us feel insecure and heightens our stress levels.😧
One way to start building up your savings is to limit your impulse spending, on things that don’t form your living expenses (that’s discretionary spending). Setting up a specific dedicated bank account for discretionary spending means you’re setting yourself a limit to only spend the amount that’s in that specific account, and no more! 🛑
TYPES OF SPENDING
So, what’s an expense? It’s money that must be spent in order to get by and usually reoccur. Things like rent, phone bill, water, gas, electricity, insurance, groceries, car maintenance, petrol, clothing, etc. 🍜
And what’s discretionary spending? It’s money that you choose to spend in order to enrich your life, generally on wants rather than necessities. Ask yourself ‘Can I live without it?’ and if the answer is Yes then it’s discretionary. 🍹
HOW TO LIMIT DISCRETIONARY SPENDING
The first step is to work out where your money currently goes, and categorise it based on what is an expense and what is discretionary spending. This is a reality-check and gives you the facts. Then you can get to work on each thing in that discretionary category, asking yourself whether you want to keep spending money on those things. Too often there’s subscriptions to things you don’t use, memberships to gym or clubs you don’t go to, and habits you probably could do without, like late night online shopping.
If you’re really serious about taking control of your spending here’s a general checklist:
Log into the bank account and download the transaction history for the last few months. This can take some time, so setting aside a few hours is a good idea. 📱A handy spending review template is in our website resources.
Look through the spending and categorise it into Expenses vs Discretionary.
Work out how much per pay check you’re spending on discretionary things now. Don’t get angry about it. You’re moving forward.
Look at all your discretionary spending and decide whether it’s really serving you. Does it help you live the life you want?
Work out how much you might spend on discretionary things in the future. How much per pay do you need to spend on this stuff?
Work out the difference, whether it’s $10 or $50 a pay check, and put that money into your savings account on auto-transfer. Kudos, you’re now building your savings!
Now create another auto-transfer for each pay check into a separate new discretionary spending account, specifically for you to spend on those type of discretionary things.
Have a debit card for your new discretionary account and save it into your phone apps, so you’re not tempted to eat into expenses money!
Nice work! 🙌 But don’t stop here. There’s so many more ways to do things differently with your money and improve your financial wellbeing.
👉 If you want to go further, check out our online course
👉 See another tip here about treating your savings like a bill
And the next time you need to buy a new handbag, you’ll know which account that comes from (your new discretionary spending account of course!) 👛
Please note:
Always learn the fees and costs of your bank accounts.
If you’re making changes to household money and have a partner, make sure they are aware and in alignment with the changes first.
This article provides general advice only. It does not take into account your objectives, financial situation or needs. Before acting on any information provided, you should consider the appropriateness of the information and the nature of the financial product in regards to your objectives, financial situation and needs. We recommend discussing your personal situation with a financial professional.
Article by:
TEAM TMC
Financial Wellbeing Coaches and Mortgage Brokers
The Money Collective
