1. Freedom savings account

If you only do one thing from this section, do this: set up an automatic money transfer that directs at least 10 per cent of your salary into a separate account (you can ask your employer to do this on your behalf, or you can usually set up your online banking to do it too. If all else fails you can do what some people do and revert to an envelope system, cashing, and then dividing up your pay cheque as soon as you get it into separate envelopes).

As a young guy, I was directing 30 per cent of my income into this account. I didn’t have debt, or dependants, and I had a different view on saving than most people. I didn’t envision working a job for the rest of my life, nor did I have any desire to live below my means while scrimping and saving forever either. There’s a reason why I call this a freedom savings account — not just a savings account. It’s because, as I’ve pointed out before, siphoning off some savings from your salary is an excellent first step for getting freer, and a good short-term strategy. Constantly saving while working a job for the rest of your life? Not so much.

But what about emergencies? Should you set aside an emergency amount of money first, before saving for freedom?

Putting aside money for emergencies is great. In fact, it’s the little emergencies that tip a struggling family, living pay cheque to pay cheque, over the edge. But it’s not the ‘unforeseen emergencies’ that are really the problem: accidents and emergencies strike everyone.

The problem is being stuck in the short term without the freedom to respond when life throws you a curveball.

2. Freedom from debt account

This is a second account you can direct your salary into for the purpose of paying off your debt. (We talked about how to prioritise paying off your various debts in chapter 9.) Once you’ve paid off a debt, the money you directed into this account can be redirected towards your freedom savings account. Just setting up an automatic payment plan to tackle your debt won’t free you from debt instantly, but it will free you from constantly worrying about debt for good.

Freeing your mind from the short term is important. By systemising where your income goes you can free yourself from debt, and free yourself to dream.

But there is still the day-to-day drudgery of worrying about bills, the tedium of budgeting, and the constant worry about spending too much on fun things and ending up short.

When I was systemising my salary I didn’t want to obsess over the minutiae of a budget; I didn’t want to spend every fortnight wondering if there was enough money to pay the bills and I didn’t want to go out on a Friday night worrying about spending the rent money … so I wondered if there was a permanent way I could solve these problems and not have to think about them — so my mind could be free.

3. Freedom from bills account

How great would it be to never have to worry about paying a bill again?

To never worry about making the rent or mortgage payment? By setting up a freedom from bills account you can do just that.

If you think about it, expenses in life are either predictable, or variable. Your freedom from bills account is set up to deal with the predictable expenses that don’t vary based on your activity. Debt repayment plans can come out of here too if you don’t want a separate account (keeping it separate can help you to see the progress you are making). This is an account that will take care of all the ‘big’ expenses that come up regularly and frequently — such as rent or mortgage payments — or infrequently — such as insurance and registration. These big expenses often end up overdrawing people’s accounts.

To set it up you can deposit the first couple of weeks’ savings you make in your freedom savings account to ‘seed’ this account. After all, freeing yourself from worrying about bills is a pretty good use of freedom savings. Some people choose tax time to start this account and use their tax refund to seed it instead.

The reason you seed the account first is that you might get a rush of these bills all at once; by putting a little money into this account first, you’ll be able to cover these.

Once it’s seeded, sit down and tally up all the annual expenses you can predict: rent, mortgage, insurance, phone plans, registration, services, memberships — everything that you spend money on that is a predictable amount.

Divide the total yearly amount by 52 to come up with a weekly payment — or 26 if you get paid fortnightly — to work out a freedom-from-bills amount to deduct from your pay and direct into this account. Simple, right?

Then there are the variable expenses. Most people lump all variable spending into one account, but I like to separate it out into two categories, which I think is important psychologically: freedom from expenses (the boring stuff that’s variable) and freedom for fun (the fun stuff that’s variable).

4. Freedom from expenses account

Boring expenses that are variable can include groceries, fuel, work lunches and so on: stuff you spend money on each month that’s not fun, but varies based on your consumption. For this account, you are going to have to estimate how much you spend; keeping your receipts for a few weeks can help with this. (Some bills that do vary based on your consumption, like your electricity bill, technically can go in here, but being a big bill that only comes a few times a year you might choose to estimate the average amount and put it in your freedom from bills account instead. I like to think of the freedom from bills account as the one that covers all the big stuff that you don’t actively buy. You actively buy your groceries each week — and therefore can more easily control how much you spend — but you don’t ‘buy’ your electricity in any meaningful sense.)

Note that I’m not asking you to budget at all here. When I set this account up for myself I wasn’t poring over my grocery shopping receipts and eliminating things, or taking a bag lunch to work. I was trying to simply separate out what I was actually spending, on average, on mundane stuff and have that amount available in a separate account.

When I worked out a weekly amount to cover this I allowed a little margin, and if I went over I had to dip into the final account: the freedom for fun account.

5. Freedom for fun account

Finally, how good would it feel to know that there is an amount set aside you can spend with no guilt, however you want, without fear that you won’t be able to afford to eat or pay the rent?

This is the beauty of a freedom for fun (or freedom to spend) account. Many people happily spend money on stuff that’s fun, and run out of money for the stuff that’s not, until they can’t even enjoy spending money on the stuff that’s fun anymore! But, with this account, you can spend this money however you want, and if you blow it all before payday — no worries!

The objective, in setting these accounts up, is not to budget but to simply systemise the money you are already spending. Once you have a set amount of money to spend on fun, with no risk of cutting into other necessary spending like rent or food, it starts to become natural and automatic to think more carefully about what you spend your money on. Unlike traditional budgets, you’re not denying yourself luxuries so you can pay for boring necessities; you are instead learning to choose what luxuries — which fun stuff — gives you the biggest bang for your buck. You learn to really ensure that you get enjoyment out of the money you spend, which is a much more positive skill to learn than denying yourself pleasure out of guilt.

The good thing about separating out the boring variable stuff from the fun variable stuff is that without thinking about it, it becomes natural for most people to start to want to spend carefully on the stuff that really doesn’t give them pleasure either, like making sure you don’t overpay on fuel, or overpay on groceries. If you overspend on boring stuff, it directly eats into the stuff you really do enjoy spending money on. And if you spend more wisely on shopping you can end up with a surplus that you can put into your fun account! You might find you want to examine some of those fixed expenses we mentioned earlier too, if doing so can directly lead to a surplus in your freedom from bills account that you can do something more pleasurable with. You could shop around for a better mortgage rate, or insurance, or subscriptions and so on.

In fact, a lot of people find that something else even more powerful starts to happen: having started to enjoy seeing their savings grow in their freedom savings account, they often become motivated to find surpluses in their other accounts and direct those to their freedom savings account, and not just to the fun account.

The most important step by far is to automate the savings. Once you see that savings amount grow, for many people the rest starts to take care of itself. Once you see that this money can be used for bigger things — like investing, starting a business, getting qualifications or buying equipment you can use to generate extra income — you naturally start to lose interest in just ‘consuming’ stuff all the time. The vast majority of financial planning advice is based on the assumption that you are an employee who just wants to consume. The best cure for over consumption isn’t to try to deny and punish yourself, or ‘hide’ your money from yourself, but to discover something better you can do with your money, discover the power of producing instead of consuming, and start to see how money can be an ‘input’ instead of just the ‘output’ of your job.

At some point, all this systemising of your salary can be like organising deck chairs on the Titanic — there are bigger issues. But what’s most important, is that while the act of budgeting is fighting against your values, systemising your spending like this can help you to change what you value.

Once you establish the correct value for money it becomes natural to save it and to want to see it grow.

Freedom First is about developing a healthy view on money. Money is valuable, it shouldn’t be something you try to ignore, but you shouldn’t obsess over it either by feeling guilty or ‘punishing’ yourself. You want to appreciate that money can give you choices. Having the freedom to choose, to not waste money on things that don’t bring you value, while having the freedom to actually do the things that you do value is the ultimate goal. And as we know, while half of all millionaires operate on a strict, planned-out-in-advance, annual budget, the other half doesn’t. Once you establish the correct value for money it becomes natural to save it and to want to see it grow.