Even before a global pandemic upended people’s lives and finances, only about one third of Americans were actually financially independent. And the number drops precipitously when you take into account families with children and people under the age of 50.
But Courtney and Ryan Luke are shaking up the financial industry using six bank accounts to truly achieve financial independence. Courtney and Ryan paid off all of their debt, including their mortgage, on a single income with this system. Ryan, the sole income earner for the family, is a police officer, and Courtney stays home raising their three kids.
So just how does one income plus six bank accounts equal financial freedom? And is it a system that can work for you too? We sat down with the couple to learn how their successful strategies could help others deal with their financial struggles.
Add Structure To Your Financial Plan
According to Courtney, they must have a structure built for their finances to be successful. For example, before using multiple accounts, she used only two bank accounts: one checking account and one savings account.
Like most people, she directly deposited money into her checking, where she paid the bills. Then, if there was any money left at the end of the month, she might move some of it to her savings account.
According to Courtney, “When I managed my finances this way, I was going nowhere fast. I wasn’t saving anything, and I spent what I made. I was happy as long as there wasn’t a negative balance in my checking account at the end of the month.”
It turns out that most people manage their finances this way. She was normal and didn’t know any better. However, now that she’s older and (hopefully) wiser, she uses a minimum of six bank accounts – and sometimes more.
Courtney’s Current Bank Account Setup
Courtney told us, “My first account is my checking account. After all my pretax money is taken out of my check for retirement, health insurance, and health savings, the remaining funds go directly into my checking account.”
They then shift the money into a series of separate savings accounts earmarked for specific use – vehicle fund, vacation, emergency fund, and two “fun money” accounts.
Moving the money forces them to stick to their budget for the remainder of the month, which isn’t hard if you incorporate a simple monthly budget template into your financial planning.
Move Money at the Beginning of the Month
Most people manage their money in a backward manner. Leftover money moves towards goals at the end of the month. The problem with this method is that it is too easy to overspend. Courtney told us, “like when I was younger, I usually spent what I made because the money was easy and accessible.”
If you move your money first, it is much more challenging to overspend. Especially if you don’t have the cash in hand.
Strict discipline on credit card usage is also a must. Credit cards make spending too easy, even when you run out of money.
Courtney recommends using cash throughout the month if you have issues with credit cards. Leave the cards at home when you go to the grocery store or shop online.
You Need a Vehicle Account
After receiving the money in their checking account, they move a portion into a vehicle fund. This fund is only for vehicle maintenance and future vehicle purchases. Courtney is anti-car payments, so they save up and buy their cars with cash.
However, because they drive older vehicles (one is 15 years old, the other is 17 years old), they periodically need repairs that can be a few hundred dollars to a thousand or more. They never need to put a vehicle repair on a credit card, because they’ve been contributing to this account every month.
The Vacation Account Is Her Favorite
The third account is their vacation fund. This is their favorite fund and one they make sure to put money into every month. By having a set amount of money deposited into this savings account with a sinking fund strategy, they pay for their vacations with cash as well.
Now they can enjoy their vacation and not feel the pain of credit card debt when they come home from vacation. Courtney and Ryan love their holidays, so they make sure it is one of their top priorities to fund this savings account.
Emergency Savings and 6 Months of Expenses Account
Their fourth account is their emergency savings and six months of expenses fund. Because they’ve been self-disciplined, this savings account is fully funded, so they no longer need to contribute to it. Instead, it sits there, making little to no money in interest.
Courtney is all about investing money, and it hurts to know that this account is worth 2%-3% less each year due to inflation. However, this is a savings account and not an investment. It is there to protect them against emergencies or unexpected significant expenses.
Insurance for life is an excellent way to think about it. Insurance costs you money – investments make you money. This savings account is their insurance.
“Fun Money” Accounts – Only for Fun!
The fifth and sixth accounts also rank among their favorites. Courtney and Ryan get a certain amount of “fun money” each month. Fun money is money that they can spend without feeling any guilt. If she wants to use her money on my hair and nails, she can; if he wants to get beer and wings with his friends, he can with no questions asked.
They each need a certain amount of money to spend without feeling guilty. If you are in debt, you know how frustrating it can be to stick to a budget without any room for fun. It’s like a diet.
If you have no cheat days, how many people will stick to a diet for any amount of time? So give yourself some wiggle room to splurge a predetermined and budgeted amount on yourself, even if it’s only 20 dollars a month!
Courtney and Ryan are presently at the lowest number of accounts they have had in their marriage. In the past, they have saved into more accounts, depending on which goals they are saving for.
This structure works very well and is not confusing once you get a handle on it. You have built up a monthly routine of moving money to set yourself up for future success.
Increase Your Income To Fund Your Accounts Quicker
Courtney also relies heavily on Ryan’s side-hustle. He works another job outside of his primary employment to add more money to their goals. This way they fund their separate accounts faster. All of his side job money goes to the extra accounts, and none goes to bills.
When you get too deep into overspending and using a side hustle to pay the bills, you are basically one injury from defaulting on your “loans.” Avoid this slippery slope!
If you are in debt, your account structure may look slightly different. If you continue to spend money on vacations or other things that delay your debt payoff, you may never truly free yourself from debt.
On the other hand, if you sacrifice a couple of years now to get out of debt, you will be able to take many more exciting and financially stress-free vacations in the future. Learn from Courtney and Ryan and avoid punishing your future self by spending money you don’t have today.
Originally published at Wealth of Geeks
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