One of the things I have struggled with for years is the question of having different bank accounts for different activities (which makes sense) yet trying to keep things simple because as sure as eggs is eggs (sic), any money is invariably in the wrong account at the wrong time. I know that all the other living-on-the-edge-entrepreneurs will know what I'm talking about! The other challenge I have is how to account for items spent using credit cards. Physically how to enter them into my "day-book" so that they make sense to my money, and to the tax man - as my day-book is used to prepare my accounts.



I needed a blueprint on how to design a supportive environment using my bank accounts. One that would be almost automatic, one that would "work".

The first glimmer came when I read a great article by US life-coach Mike Neill called the "Freedom Fund" which was just perfect for employed people who want to leave their job and start a business. It covers setting up your bank account as if you were already self employed and Mike kindly gave me permission to reproduce part of it in this article.

Then, over Christmas I was reading Mary Hunt's book "Debt Proof Living" (which is excellent by the way), and she goes into bank accounts in great detail. A light bulb moment. Wow! I realised that if you combined this stuff with Mike's Freedom Fund tip, it would be a great blueprint for how to set up your bank accounts to be a support system, a new "environment" to help you evolve into your new financial lifestyle.

So here it is, with thanks to Mike Neill & Mary Hunt.

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10 Steps To Financially Intelligent Bank Accounts - Part #1

1. Start with creating a Freedom Fund.

So you want to be self-employed . My bank manager says that most companies fail because of a lack of profit or bad cashflow management, so let's see if you can run your company finances right now, as if you had already started.

Your total income (turnover) for your company, is what you typically earn each month, right now (act as if your company existed already). Then think about what realistic amount you could manage on, if you cut out some unnecessary luxuries. Think about this amount as your "salary" to yourself. Aim for paying yourself a salary of 80% less than your company's gross earnings (your current monthly income).

Set up a high interest deposit account with 90 days notice for withdrawals, transfer your monthly income over, to be paid into the new account, and set up a standing order to transfer the 80% - your new salary - into your usual account. Live on that for a while. It'll be worth it because you are proving that not only are you a good boss because you can manage the company's money, but you will be creating a Freedom Fund. (www.freedomfactory.com)

2. Paying "Upstairs" or Paying It Forward

Anyone seen the great film "Pay It Forward"? The concept is that you should always do great things for others in the certain expectation that your kind deeds will make an amazing difference to the world. And that, , in some roundabout way, via maybe fantastical and unlikely routes, a kind deed done by someone around the world somewhere else, will find its way to you. It's a variation on the "Good Karma" theory, if you like.

Most wealth creation experts agree that if you give or "tithe" a certain part of your income regularly, you will start to create abundance in your life. Mary Hunt says that "Giving teaches my brain that I have more than enough" and I agree with her that, when you give, you are starting to move beyond scarcity. When you live in financial scarcity mode, this is one of the hardest things to do. But it's a fact that all of the world's great wealthy people give. They give their time, their money, set up foundations and do a lot of fundraising. I am convinced that, if you want to become truly wealthy, you must decide right now that you will systematically give to others a set % of your income, no matter how tiny to start with. Do it by standing order or direct debit, out of your freedom fund bank account, but calculate it on a % of your 100% not on a % of your 80% salary. Create some freedom for others, from hunger, from abuse, from disease, from fear.

3. Pay Yourself First

It's hard when you are struggling, to get your head around this next concept - Pay Yourself First. Robert Kiyosaki explains it very eloquently in his book "Rich Dad, Poor Dad".

Poor and middle class people tend to pay everyone else first. They pay the government in the form of their taxes, the car loan company, the mortgage company, Sainsbury's or Tesco's for food, the garage for car repairs, off-license owner for wine at dinner, even McDonalds for the kid's Saturday afternoon jolly. Paying everyone else first.

So why are those people or companies more deserving of your hard earned money than you? Especially the government. Did you know that, if you are employed and paying PAYE, you are typically working until April every year just to pay your tax and national insurance?

Every time you hand over cash or write out a cheque, especially while you are not yet creating one of the Funds below, remember you are paying that person or company first, before you are paying you.

Tip: A good figure to aim for here is 10% of the 80% or so that you have decided on, as your salary.

4. Your Catastrophe Fund.

Okay, we accept that we deserve to pay ourselves first. So what do we do with the money?

Out of our 80% salary, first, we must create a Catastrophe Fund, in another bank or savings account. This is not money for unexpected, irregular and intermittent expenses, you know, the ones that we forget to budget for, and end up scrabbling to find the cash for, like a new lawnmower, auto repairs or ballet classes. No, this is for major catastrophes, such as divorcing, losing your job or falling ill, when perhaps your only other fallback would have been to turn to the personal loans or credit cards. Experts usually agree that this should be between 3-6 months living expenses or you may prefer to set a particular amount of money down here.

What would make you feel secure? ?2000? ?5000? ?10,000 or even ?20,000? This will become your second line of defence against incurring debt (see below for the first line). Find a high paying interest account, ideally one with 30 days notice, and "pay yourself" by standing order from your normal account, intot this account. Remember, this is a limited time period payment - when your set figure is reached, you can divert this money elsewhere.

Tip: You could either start this with your entire 10% or do half and half perhaps, leaving 50% for your Contingency Fund.

5. Your Contingency Fund

This is an amount of liquid cash, money you can get your hands on in 24 hours for the minor emergencies in life. We are talking boilers blowing up, camshafts breaking (who knows what they are but I know they're expensive!) or perhaps the roof leaking and needing to be fixed fast, before the insurance will pay up. When this Fund is full, the good news is that you can siphon the money that would have gone into this, into something else - it's a payment that will end. Your attitude towards this fund will either make or break your new Financially Intelligent lifestyle. This is not a pool of money to be used for anything you fancy, (like a holiday or a new coat) but a cushion amount that will be used, then topped back up from the Odds & Sods Fund. Tip: Figure about ?1000 for your contingency fund.