Issue #027: The ONLY 5 Accounts You Need

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I like to simplify shit.

My mate told me last week that he saves his money in 4 different accounts because of the various offerings he gets, so that he optimises EVERY penny.

4 accounts just for savings… WTF 😬

Now I’m not against people spending lots of time trying to make every penny work as hard as possible, but personally, I think when it comes to where you store your money, less is more. Cover the basics, and the rest is noise.

So what are the basics?

These are the ONLY 5 types of account you will ever need!

1. Current Account

Think of this as your control centre. It’s the place that money will flow into and out of, but WILL NOT be stored, for example:

In: Salary, Side hustle, birthday cash from mum

Out: Transferring to a mate, rent, all other cash to maximise it’s use.

🙋What makes a good current account?

As I’m not storing cash in here, things like interest rates are irrelevant to me. Instead I just want a great app interface that makes it easy to use, good customer service, and definitely ZERO costs.

2. Emergency Fund

Otherwise known as the “AH SHIT’“ pot of money, this account will transform your relationship with money like nothing you’ve seen before. This is the cash you have stored away for those unexpected moments, for when your car breaks down, boiler gives in, and you’re fired from your job all on the same day. It allows you to cover those events without needing to consider options like borrowing money from friends and family, or even worse, putting it on your credit card!!!

🙋‍♂️Where would you put this and how much?

Start by calculating how much it costs to be you over the period of a month, and aim to stick that much away into an easy to access account (if it’s paying high interest even better). This money should be fully accessible as remember, you’re gonna need it at a moments notice. You should then aim to increase this number up to 3, 6 or even 12 months worth of expenses depending on your age, risk tolerance, and career choice.

3. Short Term Savings

Simply a pot of money for financial goals you have in less than 5 years time. Let’s break that down with an example.

Goal: £30k house deposit in three years time

Steps: £30k over 3 years means saving £833 per month into this pot

🙋Where should this go?

Somewhere safe that is paying high interest and that you can access when you need it. Don’t be locking that money into a 2 year fixed account if you want to spend it in 1 year. If you can find somewhere that allows you to split money into pots, that is a great way to truly visualise what these savings are going towards.

4. Long Term Investments

Notice I didn’t call these savings, because I believe that the best way to make your money work for you if you are able to put it away for a long period of time is in investments. That’s because historically over long periods of time they outperform saving rates. Ideally this is for money you don’t want to spend in the next 5 years, but I prefer to say at least 10!

🙋‍♂️URM, how what where when why do I invest?

To start, you want to open a tax-free investment accounts (where you don’t pay tax on your earnings). In the UK this is called a stocks and shares ISA but most countries have their own versions of this. I then like to invest into well diversified global index funds rather than trying to pick my own investments.

I fully understnad that people find investing super complicated, so just reply to this email with any questions about it and I will answer EVERY SINGLE ONE.

Oh and for a complete guide on where to start investing, you can check out my favourite platforms HERE

5. Pension

Last but definitely not least is the pension, either in the form of the one you get through your employer, or if you’re living the self-employed life like me, it will be in a SIPP. Most of you don’t realise it, but if you have a pension you are likely already investing. The difference is that you can only access a pension when you are much older, where as an investment account is for that huge chunk of time pre retirement but post 5 years from now.

One thing to note is that a lot of employers offer some sort of pension match scheme, where they will contribute towards your pension a certain amount, depending on how much you put in. This is literally free money that you either use or lose each month, my recommendation would be to use it!

e.g. you put in 5% of your salary, your company with add 3% of your salary as a bonus. At my last job, my company offered 12%!!!

There you go… just a super simplified guide of the 5 places you need to stick your cash.

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^{DISCLAIMER: None of the above is financial advice. This newsletter is strictly education and should not be taken as investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and always do your own research.}