A financial expert has revealed his top money saving tips from using two banks to prioiritising holidays and splitting up savings into different accounts.
Max Phelps created the Five-2 Money Diet – which is based on the common diet of eating normally five days a week before restricting calories for the other two.
He said Australians can achieve financial freedom by ditching traditional bank account structures and by following five key steps to improve saving capabilities and build a property portfolio that helps them retire young and go on holidays every year.
‘If your pay comes into an account that you can access with a card, or worse, access it before you have even earned it with a credit card, you are very likely to lose track of your spending and spend more than you would otherwise,’ Mr Phelps told Daily Mail Australia.
‘Like most Australians, I once was set up with one bank account, one savings account and one credit card. What I worked out later is that this is just about the worst set up to have from a psychology perspective. I used that method for 11 years and I am $1.1 million poorer because of it.’
Mr Phelps’ number one piece of advice for avoiding dipping back into your savings accounts is to separate your accounts into two different banks
1. Stop getting paid into an account you can access
‘The first step in dismantling the classic Australian system of one bank account that handles all of your everyday spending and bills, is to restructure your accounts,’ Mr Phelps said.
He suggests getting paid into an account that a card is not attached to and is dedicated to bills is a guaranteed way to fix any overspending habits.
‘Bills are quite fixed and predictable, which makes them significantly easier to calculate over a year than a pay cycle,’ he said.
2. Drip feed into your everyday spending account weekly
Mr Phelps – who wrote Getting Your Money $hit Together – believes most of us work on a weekly schedule no matter what your pay cycle is.
‘Groceries, gym memberships, coffees and nights out are all everyday expenses that can be calculated week-to-week,’ he said.
‘By drip feeding money from your bills account each week you will be able to determine an allowance for that period of time with the assurance that you still have more money where it came from that you can access the next week.’
Mr Phelps suggests getting a bank account and then drip feeding yourself funds so you don’t spend money all at once
3. Split up your savings
‘I wholeheartedly believe that separating your savings into three accounts – future, holidays and fun – will change so many people’s lives,’ Mr Phelps said.
‘Like so many, I too once had one big savings account that everything was slumped into. However, this meant that I was always dipping in and out of this account when different expenses popped up.’
He recommends creating automated future and holiday accounts in line with your pay cycle, and then developing an account you top up monthly – calculated similarly to your everyday spending – for things like clothing, special occasions and weekends away.
4. Prioritise your holidays
Mr Phelps believes the beauty of creating a specific bank account for holidays is two-fold.
‘Let’s say you have $50,000 in one savings account, the risk is you may either be tempted to dramatically overspend on a holiday or choose not to take one at all because you need that money for your future – and that is not good either,’ he said.
‘Giving yourself permission to spend is a good thing – especially on holidays. Instead of having $50,000 in one account, you can have $45,000 in your future account and $5,000 in a holiday account, which sets a budget for you to enjoy your time away guilt-free.’
Mr Phelps says holidays are important and Aussies should have an allocated savings account so they can enjoy vacations guilt free
5. Use two banks
Mr Phelps’ number one piece of advice for avoiding dipping back into your savings accounts is to separate your accounts into two different banks.
‘I recommend keeping your bills, future and holiday accounts with one bank, and your everyday and fun accounts with an entirely different institution,’ he said.
‘With this system you do not need to have any guilt if you spend every last cent in your everyday and fun accounts because you know you are not going to miss a direct debit that are linked to your other accounts.
Studies show that people spend 30 percent more when they’re using a credit card rather than a debit card.
‘That is where psychology comes into play, and is the reason why I have developed the Five-2 Money Diet so that people can have complete control of their finances without the invitation to overspend,’ he said.
Saving successfully is not based on maths but on psychology, and Aussies should allow themselves to have fun and go on holiday
According to Mr Phelps – who grew up in a working class family with nine kids – the Five-2 Money Diet is based on psychology instead of maths.
‘After completing university I took the most secure and high paying job I could find. However, my biggest downfall was that my wife and myself were terrible at saving,’ he said.
‘Then something amazing happened. I was posted to Thailand with the company I was working for, and was getting paid part of my salary back in Australia and some of it in Thailand.
According to Mr Phelps – who grew up in a working class family with nine kids – the Five-2 Money Diet is based on psychology instead of maths
‘We actually found that the amount of money I was receiving in Thailand was enough to live on and it just honestly seemed like too much of a hassle to move money from Australia to Thailand.
‘We became amazing at saving over the four years we spent in Asia, and that is where the initial concept for the Five-2 Money Diet was born.’
After 15 years working for a multi-national company, Mr Phelps realised it did not sit well with him that he was helping this company make more money from ordinary people, so he took a redundancy and became a teacher in the United Kingdom for two years.
When he returned to Australia and discovered his teaching qualifications weren’t valid in New South Wales, he became a mortgage broker.
‘During this time, I quickly understood that most people spend much more than they realised, and that my teaching skills would be better used to coach adults how to manage money,’ Phelps said.
‘Since then, I have attained a Diploma in Financial Planning and started coaching people how to manage money with five bank accounts across two banks to stay on track and save more – hence the name the Five-2 Money Diet.’