One of the many things that I love about the Barefoot Investor approach to personal finances, is that it is easy to set up and put everything on autopilot. Seriously, I no longer do a detailed budget anymore or keep track of every transaction! Find out how I use the Barefoot Investor Bank accounts to keep everything organised with very little effort.
Ok so let’s get to the nitty gritty…
How many bank accounts?
Scott Pape aka The Barefoot Investor recommends setting up 5 bank accounts.
The Barefoot Investor Bank Accounts are:
- Everyday Transaction Account called ‘Daily Expenses’
- Everyday Transaction Account called ‘Splurge’
- Savings Account called ‘Smile’
- Savings Account called ‘Fire Extinguisher’
- Savings Account with a different financial institution called Mojo.
What are the bank accounts for?
Daily Expenses Account
Pape suggests you aim to live off 60% of your take home pay which gets put straight into a transaction account called Daily Expenses. This covers spending on your basic living expenses; bills, rent or mortgage, food etc.
Pape then suggests setting up an automatic transfer of 10% of your take home pay to a second transaction account called Splurge. This bank account is for spending, but for the fun stuff or “guilt free splurges that put a smile on your dial.”
According to Pape, another 10% of your take home pay should be automatically transferred from your Daily Expenses Account to a savings Account named Smile.
The money in this account is for your big savings goals like an overseas holiday, or a wedding. Anything that will take more than a couple of weeks to save for.
Fire Extinguisher Account
Now, allocate 20% of your take home pay to another online savings account called Fire Extinguisher. These funds go towards putting out financial fires, of course, like paying off your credit card, saving for a home deposit, paying off your mortgage early, building a 3 month emergency fund etc.
I go into all the ins and outs of a Mojo Account here. But suffice to say, a Mojo Account is an online savings account that gives you, according to the Barefoot Investor, spring in your step, that says, “I don’t stress about money!” You only touch it in emergencies like losing your job, or getting sick.
Read more about how to set up a Mojo Account, how much you should have it and more.
Barefoot Investor Bank Accounts in Real Life
Between us hubby and I have 8 bank accounts. It sounds like a lot! 6 are with ING, so no bank fees, and hubby has a everyday transaction account with Commonwealth Bank. So here’s how the Barefoot Investor Bank Accounts work for us…
Daily Expenses Account
Both our take home pay goes into an ING Everyday transaction account, and automatic bill paying is set up for almost all our bills. I also have regular amounts transferred into our other accounts, either weekly , fortnightly or monthly.
Hubby and I each have our own splurge accounts. A weekly amount is transferred into each account.
Hubby has a few expenses that come out of his such as his gym membership. I have a fortnightly transaction set up to the kids bank accounts from my Splurge Account. We are pretty frugal splurge spenders so it ends up being a lot less than 10% of our take home pay.
We have an ING Online Savings Account named Vehicles, our version of a Smile bank account. I recently finished paying for my car and have continued transferring the same amount to a separate bank account to save up for our next car. Continuing our frugal spending ways, I prefer to pay cash for a vehicle and to buy secondhand.
I also transfer a fortnightly amount for vehicle expenses to this account for any vehicle related expenses. Work it out the amount you need to save by adding up all amounts you expect to spend over a year, and divide by 26 for the fortnightly or 52 for the weekly amount.
Another Smile Account
We have another ING Online Savings Account named Family Fun. Here I put aside an amount each fortnight for birthdays, Christmas, family holidays and any one-off experiences that are worthy of being called family fun.
Fun in our family is very budget friendly, like going away camping, so only a small amount is transferred into this account.
Another Smile Account
Similar to the vehicles and family fun bank accounts, I have an online savings account named Kids. Any kid related expenses come out of that bank account, like school fees, excursions, clothing etc. A fortnightly amount is transferred into that account.
This is our main savings account, and anything and everything that we can squirrel away goes into this account. It’s another online savings account with ING. This account gets a bonus interest rate, unlike our other online savings accounts so I have made it our main account for both emergency savings and holiday savings.
“…and you shouldn’t link it your everyday transaction account.” – Scott Pape
We do not follow this!! I use to have a separate savings account with a completely different bank. But now I don’t!
I’ve found that it doesn’t make much difference to the account balance. I get a bigger kick out of seeing the balance increase than I do with spending it. It just is more convenient to have all our accounts with the same bank.
Update 2022: While our mojo account is still with the same bank as our everyday transaction account we do now have a small amount of savings with a different bank. I did have a situation where access to our bank accounts was suspended for about a week because the bank required verification of our identity. We were stuck with no access to any money!
Well there you go… the Barefoot Investor bank accounts in a nutshell, and how we choose to organise our finances.
How do you organise your bank accounts?