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How to budget with three accounts

iwillteachyoutoberich.com — Financial blogger Ramit Sethi has a great bare-bones way to set up a good personal financial structure. Basically, it boils down to three separate accounts: checking, savings, and investments, with sub-categories within each. Once you have the basic infrastructure processed, you'll be better able to see where your money goes.

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  • leapingfrog, on 10/12/2007, -2/+3He's has some good advice. I personally love ING.
    • Chasin_Fat_Kids, on 10/12/2007, -1/+1ING here too - if they only had checking w/ interest - I'd drop my brick and mortar bank asap.
    • Himself, on 10/12/2007, -1/+1think: money tagging
    • chetanw, on 10/12/2007, -1/+1I luv ING
    • stomicron, on 10/12/2007, -0/+1I used to love ING when they were leading the way, but for at least a year now they seem to have dropped the ball (the big orange one in their case) and so my money is no longer with them.
    • andreo, on 10/12/2007, -0/+1@stomicron:

      Dropped the ball how? What did I miss?

      I still send all my extra cash to them on top of the money that I automatically split off from my paycheck every payday. They pay higher interest then any of my other bank accounts (including my credit union savings).
    • Zlobadon, on 10/12/2007, -0/+1I have an ING savings account, currently over 4% interest, but I'm thinking about switching to Emigrant Direct -- They're over %5!
    • stomicron, on 10/12/2007, -0/+1Sorry, should have clarified but while digg is on v3, the comment system is back to v0.3 alpha.

      Anyway, they were leading the way in rates. In the past year they've been passed by quite a few banks, most notably (and consistently) Emigrant Direct and HSBC. Shoot, even Citibank of all people ave a better savings rate.
  • Chompy, on 10/12/2007, -1/+1Once you get over $100k you can get decent rates from B&M banks.
    • Himself, on 10/12/2007, -2/+3Once you have over $50,000 its silly to let it rot in a bank.
    • Chompy, on 10/12/2007, -1/+1At the moment we're building a house and since we aren't sure when it will be done we can't put it into a CD or anything. We're getting 3%.
  • AndrewLZ, on 10/12/2007, -3/+12I'm 16 and have a part-time job right now. I currently allocate:
    1/4 of the money to my First Bank Checking,
    1/4 in cash, and
    1/2 goes into my ING Savings.

    Once I get a job with paychecks (it's a cash job right now) I hope to open a Roth IRA and allocate some money into that as well. This article was pretty intresting to read as its similiar to what I intend on doing.
    • troopa, on 10/12/2007, -2/+5That's smart, Andrew. Good to see people starting young.

      And good article. I digg it.
    • Mesach, on 10/12/2007, -1/+3Either you are lying about being only 16 or you are wise beyond your financial years...

      Either way, Congrats on having a good grip on it. It is truly sad that my parents never taught me about the proper way to handle finances. If I had it under control at 16, I might not be where I am today
    • Mesach, on 10/12/2007, -0/+1jebus, people dont know sarcasm.
    • AndrewLZ, on 10/12/2007, -0/+1@Mesach. I am actually 16. Thanks for the compliment =). Funny thing is, my parents actually never taught me how to manage money. They're both sort of crazy so I've had to figure out a lot of stuff for myself.

      It's a mixed blessing; things are a little harder but I'm a lot more independant and I'm forced to think everything through for myself.

      I still have to learn about investments because at this point I know absolutely nothing on the topic. If anyone has an suggestions where to start I would really appreciate it =).

      - Andrew
    • Mesach, on 10/12/2007, -0/+1Here's something more to do to make it easier on you financially... um, mentally.

      Educatate your friends on it... that way you won't feel left out because they are blowing thier cash. And they will be better off too.
  • mr.t, on 10/12/2007, -0/+6Emigrant Direct is a great no minimum balance place to park your money (5.15% 8/4/06). FWF is a great resource for finding high interest rate accounts: http://www.fatwallet.com/t/52/437553/
    • Desolite, on 10/12/2007, -1/+1last i check HSBC (a month ago) it was at 5.05% compounded monthly.

      the article is good, but seems dated. do your research before setting up banks and investment banks (such as e-trade).
  • slowelectron, on 10/12/2007, -1/+2This article is old and the interest rates have doubled since then. ING is still standout, but you can now do better.
  • rayana, on 10/12/2007, -2/+3hm.. maybe KR dugg this story b/c he wants to become that millionaire BusinessWeek is touting that he is...
  • Ikioi, on 10/12/2007, -0/+11I do about the same thing. I actually watched Oprah's weeklong special about finances (always listen to billionares about finances), and it had a more detailed piechart of what you should spend money on (available at her website).

    I like using direct deposit and automatic transfer. I direct deposit into a checking account, which automatically transfers a set amount each week into savings. When my savings reaches a certain amount, I transfer a percentage of it into investments (debt reduction, at the moment). I do all my tracking in GnuCash, which does double entry accounting. Double entry accounting makes tracking where my money goes very easy, because there is always a "withdrew from X and deposit into Y". Got credit card debt? You can watch the money come from "Income" and go into "Checking", then come from "Checking" and go into "Credit Card" liability. All the while keeping track of my total net worth.

    I'm a firm believer that there are few investments an average person can make greater than paying off debt. As one adviser I read about said, whose better off, the person with $100,000 in a 401k, but with an $80,000 mortgage, $15,000 car loan, and $5,000 credit card debt... or a paid off mortgage, no car loan, and no credit card debt, but no 401k (but assets of equal value to Person A). Basically, one spent $100,000 into investment, the other spent their $100,000 into liability reduction.

    If person A loses their job, they're going to be in big trouble. Person B just has to pay for daily necessities, and won't suffer nearly as bad. Also, Person B can start investing and saving now, and will surpass Person A rather quickly in terms of net worth. They can devote more income, because they have no debt to pay. They will have paid far less debt, because they are not accumulating interest payments. They will experience faster investment growth, because interest is an accumulative effect.

    This is what I try to do (though its hard to be perfect, even I penny pincher like me has to go out and spend some comfort cash every once in a while). The only difference is that I maintain an emergency savings account, regardless of how much debt I have. Down the road, maybe spending it on debt would make sense. But if there's an emergency, it's good to have liquid assets on hand.
    • jamester, on 10/12/2007, -1/+2Kudos for an excellent comment.
    • chetanw, on 10/12/2007, -0/+1Yeah - good comment
    • stomicron, on 10/12/2007, -0/+2Great post. Just one thing.

      "I'm a firm believer that there are few investments an average person can make greater than paying off debt."

      I agree, but I think this is a function of the type of debt, too. I have over $150K in debt,but that is all student loan debt which has been consolidated to 2.875% and will have further interest rate reductions down the road.

      You can be damn sure I'm going to take my sweet time paying that off.
  • chetanw, on 10/12/2007, -0/+2Citi eAccount has good rates too and they have a 5+% 6 month FD - even higher than INGDirect
  • thesnacker, on 10/12/2007, -1/+0Most of that info on that page and the site can be found on a mediocore site for financial noobs like msn money , this guy still has no idea how to leverage money to create wealth, basic info, there is definitely better information out there, No Digg
    • troopa, on 10/12/2007, -0/+0Hmm, just because he didn't mention it in that article doesn't mean he doesn't know about leveraging money. He did go to Stanford and all, he might actually be a smart guy!
  • stomicron, on 10/12/2007, -1/+1This blog should be renamed

    iwilltechyouhowtoposteveryblogentryononepage.com
  • hichnii, on 10/28/2007, -0/+1good financial structure, thanks
    http://mypersonalplanning.com/category/debt-consol ...
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