I first read Monika Halan’s Let’s Talk Money a year back. In the book, she talked about the importance of having 3 bank accounts to manage finances.
- Income Account – This account can be where you receive your salary, rental income, cash gift, etc.
- Save-it Account – The second account is for saving/investing. Keep in mind not to transfer any amount from this account to your spend-it account later on. This account is for saving, not spending.
- Spend-it Account – The final account is for managing your expenses.
Monika Halan instructs you to transfer a part of your income every month, without fail, to your spend-it and expense accounts. This enables you to have a hands-free approach to managing finances.
Previously, I had two bank accounts and felt it was more than enough – until it became difficult to track my expenses. I used to micromanage my finances through an Excel sheet. After much introspection, I realized it would be much easier to have a separate account for expenses alone. Another reason was that I realized I was being extra stingy because I couldn’t properly track and compartmentalize my money. That’s right. I did not know how much I was spending, so my solution was to spend less. I decided to start a new bank account to give myself a breather.
My first two accounts were in a public bank (my income and spend-it accounts). I decided to try a private bank next. I wanted a bank with good customer support and technology, and I ended up going for a digital-friendly bank. The account opening was entirely online. You have almost every bank in India with a digital onboarding process nowadays. You can open an account within hours. I sat through a video-KYC process, and that was it. The welcome kit, containing the debit card and checkbook, was mailed to my address in a week.
Now that my expense account was in place, I slowly started transferring my expenses to my account each month, which was 40-50% of my income. I wasn’t restricting myself from spending what I could anymore. I could see I had the budget for it in my expense account.
The thing with being in a perennially “saving” mode is that you forget to indulge and pamper yourself. So having a third account helps. My expense account is also connected to UPI, and I use it for all my POS transactions, ATM withdrawals, automatic subscriptions, etc. The funds are deliberately kept limited in this account to ensure I would not lose any part of my savings in case of any online/offline security breaches. Would I recommend the three-bank approach to managing your finances? Definitely, it has made my job easier.