Myn’s Deets: How are my savings structured and why so many accounts?

This post is part of a loose series on bank accounts in Brunei. It’ll make the most sense if you’ve read the earlier notes: here for a run-down on the different savings accounts available on the market and why you should separate general and savings purposes, and here for what fixed/term deposits are and how they’re different from savings accounts.

About a month ago, I walked you through which banks and accounts I personally use:

mynaccs
Myn’s cash stash

To recap, I have accounts with three banks. The General accounts (grey) come with debit cards and I use these for normal, every day purposes. The BIBD Easysaver accounts (orange) are my main savings accounts. The term deposits and TAIB Tekad Haji (blue) are long-term savings; lets call those “investments” although strictly speaking, they’re not stocks or bond type investments.

The question I left you with last time was – “Do I save and add money to all these accounts every month? Equally? Or do I try top-up some accounts but leave some alone?” To answer this, I’ll have to first explain how I structure my savings. Let’s rewind and start from the top, and we’re going to take the scenic route as usual.

If you’ve been following me and my frankenstein clipart for a while, this image should be fairly easy to understand:

save1

You get a magical monetary windfall – your salary – dropped into your general account every month. A lot of it flies back out in the form of your expenses; but you should allow some of that magical money to exit your general account and drop into a savings jar. If you’re playing the Fives and Fifties game with me, you’ll notice the little green fishies dropping out as additional savings 🙂 (attention to detail is everything right? high five)

So far so good.

Now the question is – is one savings jar enough? Should you just open up one savings account, dump a little bit of money into it every month and then get on with life?

savingspot
single as a pringle

I have a feeling most people either have:

  1. Only one account mixing both general and savings purposes (bad!)
  2. One general account and one savings account (not too bad, pretty good!)

However, there are a few problems with having only one savings account. I like to think that savings are essentially budgets for your future, so let’s digress and talk about budgeting real quick.

There are two main ways to budget your expenses:

The first method is to have a specific budget for different purposes (e.g. food, coffee, rent, phone plan). This is sometimes referred to as the “envelope method”, where you divide your budgeted cash into different categories at the start of the month. This method is helpful because it controls and puts limits on your categorical expenses, to the degree that if you overspend on one category (e.g. coffee, *cough*), you’d be able to realize this early and theoretically slow down because your coffee envelope would be running on empty. Ideally, this segregation of expenses ensures you’re able to pay for other things (e.g. phone bill, fuel) because those budgets are already pre-allocated into their designated envelopes.

Image credit: MoneyMiniBlog

The second method is to budget according to different time-frames. So you could set up a general weekly budget (e.g. $100 per week) in addition to a monthly budget and try to stick to that.

In practice, most budgets are a combination of the two methods. So your budget could allocate $60 per month for your phone bill, but you’ll allow yourself $50 a week on food and drink purposes only. There’s no cookie-cutter way to craft out a budget, and some people find budgets entirely too tedious/difficult and don’t bother at all. We can talk about that another time.

Back to savings, and the problem with having only one savings account.

If savings are budgets for the future, one savings account means that all your “future money” is in one massive bucket, with no organizing principle – you don’t know what’s at the top, what’s at the bottom, how much to use for what purposes, and most importantly how long this bucket is supposed to last you. Organizing according to purpose and/or time-frame, like you would in setting up a budget, imposes some well-needed order on an otherwise indistinguishable mess.

Can you imagine if your wardrobe was just a swimming pool-type hole in the middle of your bedroom floor? And all your clothes were just dumped in – because after all, you only need one place to put your clothes, right?

The “methods to budgeting” might sound fancy, theoretical, or complicated, but they’re really just basic organizing principles that are applicable to every part of life. You may only need one place for your clothing but that place needs to have some logical order, which is often achieved through sub-dividing into sections.

Other examples of these every day principles include meal-planning (where you budget calories and time spent cooking) and basic time management. How do you divide your tasks and time at work? If you’ve got to clean the house, do you give yourself a set time limit to do everything (time-frame) or maybe you’ll aim to at least finish one room (purpose) per day?

Organizing your savings should be no different. Budgeting is organizing the money you intend to use in the present, savindgeting is organizing the money you intend to use in the future.
(I totally came up with that word, it’s copyrighted trademarked mine now.)

 

save6

So how do I savindget? (This isn’t working, is it.)

Do I divide into different jars/accounts organized according to different purposes, or do I organize according to time-frame… Or a combination of both?

I personally organize based on time-frame. This is mainly due to the different interest rates provided by the banks across the different accounts. As I explained previously, I stash my cash in a combination of general, savings, and fixed deposit accounts (in ascending interest-rate order). The interest rates for general accounts are pretty low, higher for savings accounts, and highest for fixed deposits. But the catch with savings accounts is you forfeit the interest if you withdraw in a specified month (i.e. you just don’t get any return in that month), and for fixed deposits you have to commit to have your money locked up in an untouchable box for a fixed period of time (~ 1 year) – so let’s call those investments.

These three types of accounts represent my short-term, medium-term, and long-term savings.

sml2

It’s better to imagine this in a staggered three-tray “waterfall” structure, cue impressive clipart mish-mash I spent way too long building (but had fun doing, haha):

save5
funds flow down, down, down

I explained previously that my salary gets banked into HSBC General, and that I have another HSBC account that is really just an extra “pocket”. This Pocket is the first, topmost tray and represents my short-term savings. It’s a normal account with no restrictions on withdrawals so it’s fully liquid (i.e. easy to take out and use) and only earns 0.15%. But since the cash stored here is for short-term reasons, I’m not too fussed about the interest.

pocket
top tray

What are my short-term purposes? Or simply, what’s the money in my Pocket for? Well, it’s the first line of defense in my Emergency Cushion. If I were to ever need cash that my monthly income can’t cover, the money in my Pocket is available to supplement. I also use the Pocket to save up for holidays or other short-term planned expenses. In fact, I’d initially set it up as a way to save for my big trip last year; I committed to set aside a few hundred dollars a month and by the time my holiday rolled around I had quite a chubby fund. I do my best to top-up this Pocket every month, and I set aside my savings first thing after receiving my monthly salary – and not just sweep up the leftovers masa bulan tua.

Since access to these funds requires the additional steps of logging onto HSBC Online Banking and then transferring from one account back to my General, this “policing” mechanism acts as a hurdle and makes me far less inclined to dip my hand into the cookie jar. In practice, if I do go shopping or have some form of emergency expense pop up, I’ll just charge it to my credit card and pay it off fully with my next salary, as soon as that gets dropped in. What this does is it effectively pinches my next-month budget if I’ve overspent this month. But if I ever do need a top-up, my Pocket money is there as a short-term savings solution.

I’m (usually) quite disciplined with my finances though, so I don’t actually use my Pocket money very often. Occasionally, if I’ve been very, very good, I’ll find that I have too much Pocket money (#firstworldproblems), especially because I’m diligent with setting aside monthly savings. Ideally, I think that a little over one month’s salary is a good amount to keep in my Pocket; any more than that and I’ll let the excess spillover into the next tray… My medium-term Easysaver account.

easysaver
middle tray

As I’ve said probably half a dozen times already, the BIBD Easysaver is a semi-liquid account (i.e. easy to access, but you forego the return if you withdraw) that earns more than twice the General accounts’ interest – at 0.4%. There’s also a minimum balance of $1000 to maintain the account (I think), so there’s a higher level of commitment needed – which makes it ideal for medium-term savings. What are my medium-term purposes? Well, this tray is the second line of defense in my emergency cushion.

A couple of posts back (spend on happy), I told you that I haven’t bought my own car yet. I’m still happily driving around a “spare” car that was just parked in the garage at home, and it’s actually pretty darn old. Don’t get me wrong, it’s in excellent condition – it’s been regularly maintained all of its life and the mileage on it isn’t very much, considering its age. But there’s no escaping the fact that she’s not as young and sprightly as she used to be, and there may be a day when she decides she’s due for retirement. I need to hedge against that risk and start saving up for that likelihood. So my medium-term “emergency” purposes are in preparation for needing a new car, because when that day comes, I don’t intend to sign up for a zero-deposit, seven-year loan with maximum interest payments. I actually also have another (expected, planned, non-emergency) purpose which I’m saving up for in my Easysaver – but maybe we’ll talk about that another day.

(No, it’s not a wedding. But I probably have to think about saving up for that eventually too.)

How much do I aim to keep in my medium-term savings before it spills over into the bottom-most tray? Well, this depends. My general rule of thumb is – if I think I might need the funds within a year, I’ll keep it semi-liquid in my Easysaver. If I could probably go a year without needing an extra $1,000 or so – I’ll chuck it in the freezer.

investments
bottom tray

Last tray is the ice-block: my long-term savings, where my frozen fixed deposits and Tekad Haji account live. For now, I have two fixed deposits earning 0.75% and they both have a one year tenor, which will auto-rollover (i.e. once the deposit matures and earns interest, it’ll automatically roll over into another year of being in the freezer). My Tekad Haji account earns dividends (so far) in excess of 1.5% – depending on TAIB’s banking performance – and is even more locked up; I think I’m only allowed to withdraw once or twice maximum ever (before they close they account), and that should be for Haj/Umrah purposes only.

Do I really intend to use my Tekad Haji for Haj/Umrah purposes? Yes, that is the intent. Initially, I was reluctant to open this account because I thought to myself “this’ll severely limit the use of my money 😦 ” And as much as it’s always a good idea to, y’know, niat awal-awal to naik Haji, actually committing to something like that was definitely a bit of a challenge. I did think that by depositing some money into a Tekad Haji account, it’s an immediate “write-off”; the money disappears, I can’t use it, and if I did use it (for something other than the intended purpose) I’d feel really horrible about it.

But I did it anyway. I opened the account shortly after receiving my annual bonus last year, bit the bullet, chucked in some money, and forced myself to forget about it. A year later, I have absolutely no regrets and think it was a really good idea, actually. Because these frozen, long-term accounts are my final line of defense in my emergency cushion. I thought about it a little more deeply: I have two other trays of defense before this final ice block. If there ever were a serious emergency, one which would require withdrawal of a very large sum of money, I would have to completely exhaust my General accounts, my Pocket, my Easysaver, my credit card limit, and my financing/loan options before even thinking about accessing my investments. And in my mind, if that day were ever to come (nauzubillah), and I would have to dip my fingers into my Tekad Haji for any reason other than Haj… That would mean I’d already exhausted all other options, and would have no other choice. This means that “reason other than Haj” could never be an impulse shopping spree, a round-the-world holiday, or even a new car, because those savings purposes are already allocated for.

save7

The way my savings accounts are structured, deposited funds flow downwards like a waterfall – but any withdrawals would be an uphill climb. Building my savings starts from the top tray and once momentum builds up, funds should trickle downwards and eventually fill the medium- and long-term trays. On the other hand, while pulling out of my savings would start from the top too, withdrawals require working against gravity and dealing with quite a number of hurdles, especially to dig out the funds at the very bottom.

This set-up might seem severely overthought and complicated, but I assure you – it’s actually really simple, and I don’t spend more than half an hour a month managing it. And by managing, I mean logging into Online banking, checking my balances, doing my transfers, and all that normal stuff.

Another point I’d like to emphasize is this wasn’t set up overnight; Rome wasn’t built in a day and neither was my savings system! I started from scratch three years ago, and at the time I’d only had one General account with HSBC and a dormant BIBD General account I had set up for me as a child (which I eventually reactivated) from when the bank was still known as IBB. My savings started really small; I probably only began diligently setting money aside six months after starting work. The first six months I’d basically wiped out all of my income on a month-long graduation trip to the US and an end of a year holiday in Australia so my finances have always been a work in progress, like most people. I’ve learnt a lot along the way and I know what works for me and what doesn’t; the way I organize my savings might not be the best way for you, but I hope you’ve found it helpful to read about in one way or another.

If you’ve got a different set-up and it works great for you, I’d love to hear how you do it 🙂

 

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