Could The “Four Pots Method” Give You Total Control of Your Finances?

How does the four pots method work
February 12, 2021 by Stuart Smale

In terms of everyday banking, most people have one current account and one or two savings accounts. (Not counting shared bank accounts).

But did you know that you can actually have as many personal current accounts as you like with the same bank? Ideally, four current accounts?

You may wonder why anyone would do that – after all, wouldn’t having four separate current accounts with the same bank just make things really confusing?

Not at all! If anything, it makes managing your money so much easier – and gives you even more control over your finances. (Just make sure they’re all set up with the same bank.)

Best of all, you can manage your four separate current accounts using your one banking app. All your current accounts will appear together on the same screen of your banking app, which means you can quickly and easily transfer your money between them.

But still, why would you divide your money up between them? Let me explain.

Pots, Purses, Envelopes and Current Accounts: They’re All the Same Thing

Way back when, before the days of digital banking, people physically divided their cash into separate pots, purses or envelopes. This way they could budget for everything they needed to, from food and bills to savings and emergency funds.

This way, they knew they’d always have enough to cover all their weekly and monthly costs. When their money came in, straightaway they’d divide it into separate pots, so that they couldn’t spend what they couldn’t afford to. They’d save what they needed to, and could only spend what was left.

These days, setting up four current accounts with the same bank is exactly the same idea. It’s just an updated version of having separate pots and purses, for our digital age of banking apps and instant money transfers. It’s just a way to let you save what you need to, cover your costs, and only spend what’s left over.

Creating four personal current accounts with the same bank is not something that most people do, or even know about. And while your bank might be curious if you ask them about it, you shouldn’t actually have any difficulty if you ask them to set these up for you.

But it could actually be a massive help if you’d like to gain greater control of your finances.

These four separate current accounts should be named as follows:

IncomeSavings

Every time you’re paid, transfer as much as you can afford straight into your new second current account, called “Savings”. Have a savings target in mind for this account, for example a few thousand pounds, and once you’ve hit this savings target then begin to pay anything over that amount into your separate savings ISA, like you usually would.

The point of your new “Savings” current account is to give you an extra layer of financial security. If you transfer everything you can into this account each month, then in time you’ll always have the money handy to pay your rent or mortgage for next month.

Over time, you’ll save up a cushion of cash for car repairs, new clothes, replacement items, little treats… it can all come out of your “Savings” current account, rather than out of your “Income” account that you’ll need for your Direct Debits and essential living expenses. Just use your banking app to transfer the money you need from “Savings” to “Income”, and that way you’ll only need to pay for things using your original card and current account.

Your new “Savings” current account is a pot to dip into when you really need to, but it’s still separate to your dedicated savings ISA. This way, you’ll build up a financial safety net right there in your four current accounts, without having to chip away at your ISA savings too. Because the best way to save, really, is not to chip away at what you’re saving already!

Investments

“Investments” is the name for your third current account. Every time you’re paid, transfer a percentage of your income (ideally 5% or 10%) right away into this Investments account. Over the course of a few months, you’ll begin to get together a nice lump sum in this account that you can then put into investment opportunities.

These investment opportunities could be anything from career training or new software, to specialist equipment for a hobby you can monetise – or even a property or a car you could renovate to sell. Or if you’re interested in stocks and funds, for example, you’ll now have an amount of money that’s separate to your income and savings, that you can use specifically for investing for profit.

Repayments, or Tithing, or Emergency Fund

This fourth current account is especially useful, because you can use it for three different purposes depending on your current financial circumstances. Let’s look at each purpose in turn.

Repayment Fund

If you currently have debts to service, then this fourth current account can be your “Repayment Fund”. Whatever you can afford to put into this account to service your debts, it’s all worth it, and it all helps you to get out of that debt faster.

If you make a regular habit of transferring whatever you can afford to into this “Repayment Fund”, even the smallest amount, then slowly but surely you’ll start to save lump sums that you can transfer back into your “Income” debit account, ready for when those debt repayments come due. It’s all about giving you more and more control over your money, by splitting everything up into these separate “pots”.

Tithing

As an alternative to a “Repayment Fund”, you can also use this fourth current account as a “Tithing” account. “Tithe” is just an old word for “tenth”. As the name suggests, this was the ancient practice of putting 10% of your income aside into another separate pot. “Tithing” was money for giving to charity, or a place of worship, or to friends, family or neighbours who were desperate and needed the help.

Nowadays, the money in a “Tithing” account might go to helping out families through food bank donations, or donating to a charity, or even just keeping something aside for friends and family if they should ever need a small loan. Of course, 10% can be an awful lot to put aside out of anyone’s income – but even saving 1%, or 0.5% of your income into a “Tithing” current account will soon mount up, and give you the power to help out someone near and dear who really needs it.

Emergency Fund

Alternatively, if a “Tithing” account just isn’t practical for you right now, but you don’t need it as a debt repayment fund either, then consider this fourth account your “Emergency Fund” instead. Whether you pay 1%, 5% or even 10% of your income into this Emergency Fund, it’s bound to be a lifesaver at some point – whether the car breaks down, the TV packs in, or if you just need a little extra to make it through the month.

What could this “four-pot method” do for your finances?

This idea of having four current accounts to your name might seem confusing at first, but try it for yourself and you’ll soon get the hang of it!

Giving yourself four separate current accounts (Income, Savings, Investments and Repayment/Tithing/Emergency Fund) is just a really handy way to think of your money in terms of separate pots. It can give people much more control over their finances.

Really, it’s just a way to make sure you’ll always have enough to cover your expenses.

The point of having these four separate current accounts (and especially your Repayment/Tithing/Emergency Fund account) is to give you more and more options if you should ever need them. And when you have more options, with more separate money pots to rely on, then you can start to feel more secure and in control of your finances.

But right now, if the main priority is just to cover those monthly expenses first, then maybe all you need is a safety net to help get you back on your feet. In this case, you may want to consider a short-term loan from a reliable, verified lender to help out, if you’re confident that your payday loan can be settled with your future monthly income.

A payday loan is a short-term solution, while the tips above can be treated as a long-term guide to giving you ever more financial control. Either way, the result is the same – it’s all about getting your finances back on track.

Is the managing director of Cobra Payday Loans and Ready Money Capital Limited. He is responsible for all the day to day functions and performance of both companies and regularly contributes information on the short term finance sector. Stuart is an approved person with the Financial Conduct Authority, holding SMF3 (Executive Director) status.

Is the managing director of Cobra Payday Loans and Ready Money Capital Limited. He is responsible for all the day to day functions and performance of both companies and regularly contributes information on the short term finance sector. Stuart is an approved person with the Financial Conduct Authority, holding SMF3 (Executive Director) status.

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