Incorporating Personal Finance Strategies: Splitting Bank Accounts
The practice of "splitting bank accounts" is gaining popularity as a personal finance trend. This involves categorizing one's funds and distributing them across multiple accounts according to specific purposes. By giving a clear direction to money, unnecessary and impulsive spending can be minimized. When money lacks a designated purpose, the mind tends to wander and come up with various ways to spend it. To prevent this, splitting bank accounts allocates funds precisely for their intended use. Commonly, individuals divide their funds among four types of accounts:
1. Daily Expenses Account: Allocated for monthly expenditures such as rent, utilities, groceries, clothing, and discretionary spending.
2. Emergency Fund Account: Reserved for irregular but anticipated expenses like gifts or travel.
3. Investment Account: Set aside for savings and investments.
4. Emergency Fund Account: Designed for urgent situations like unemployment or sudden job changes.
The split accounts strategy is suitable for:
- Those seeking a systematic "financial routine."
- Individuals finding it challenging to track detailed spending records.
- People committed to adhering to a financial plan once funds are allocated.
The split accounts strategy might not be suitable for:
- Individuals who struggle to comprehend why accounts need separation despite having a mental budget.
- Those with highly irregular income and expenses.
- People prone to withdrawing funds impulsively from different accounts.
The "Windmill Turning" Strategy Unveiled After a Year
In times of higher interest rates for savings accounts and fixed deposits, the "windmill turning" strategy can be valuable. This approach involves consistently enrolling in high-interest fixed deposit plans with a one-year term. After the first year, as each initial deposit matures, funds and interest from each subsequent month's deposit will start to roll in. For instance, if you invest in a monthly fixed deposit of 100,000 KRW for a year, from the 13th month, you'll receive the principal and interest of the first month's deposit. This strategy offers moderate risk, as even if one deposit is prematurely withdrawn, the remaining deposits continue to accumulate interest.
Careful planning is essential; starting deposits must be manageable. This strategy suits someone who can commit to an affordable savings amount. If you can only save up to 600,000 KRW monthly, it's best to deposit 50,000 KRW per month.
The Value of the "Zero Spending Challenge"
With rising costs, the "zero spending challenge" has gained popularity since last year. This involves refraining from spending money, except for essential expenses, over a self-determined period, such as a day or a week. It serves as a self-care challenge, allowing individuals to reassess their spending habits. This can involve bringing packed lunches and avoiding discretionary spending to reset typical spending habits. While this challenge can help reduce overspending tendencies, transitioning directly from such restrictions to impulsive spending is a concern. Consistently succumbing to impulsive spending could diminish one's overall financial confidence and interest in financial management.
Adopting this practice requires consideration. Trying the challenge for three days without strict deadlines can work as a detox from excessive spending. If successful, gradually implementing a periodic "zero spending" period could be beneficial.
Healthy Tips for Successful Implementation
- Manageable Schedules: Avoid overloading yourself with tasks, which might lead to stress-induced spending. Plan the "zero spending challenge" during less busy days.
- Minimize Temptations: Prevent exposure to shopping triggers, like avoiding online stores or malls during the challenge period.
- Innovative Diversions: Instead of spending on small indulgences, find alternative activities like walks, cleaning, cooking, or utilizing the library for a mood uplift without spending.