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It is worthwhile separating monies for regular and irregular expenses, and isolating the respective funds in different accounts. Most people tend to raid funds for irregular expenses for the short-term regular needs, only to find that there isn't anything left when an irregular expense (usually a larger bill such as house maintenance) is payable. This often results in borrowing short-term (such as on a credit card), or raiding emergency funds. Both outcomes can be avoided by separating expenses more carefully.
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In a similar way, it is worth separating discretionary and non-discretionary expenses. Non-discretionary expenses would include anything which is essential that you do not have too much direct control over such as property rates, phone bills and insurance. Discretionary expenses would include clothing, presents, entertainment, and, to a degree, food and grocery costs. If discretionary expenses are structured to come from an account with a limited balance, this tends to make it easier to keep within a spending plan. If they are isolated from other expenses there is the freedom to know you can spend all those funds, and still have all other costs covered. Obviously discipline is still required not to raid the other account(s)!
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It is often easier to stick to a spending plan for regular discretionary expenses by utilising a cash system. This would result in withdrawing the budgeted amount as cash and only using those funds until the next budgeted withdrawal. An ideal expense item for this approach is food, where people tend to EFTPOS their way through the week only to wonder where all the money has gone. $5 here and $20 there all adds up!
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Establish an account specifically for emergency funds and short-term spending goals. It is always better financially to save up (earning interest), than to borrow funds and gradually clear debt (usually paying high interest). Ideally there should be funds deposited into this account from your income before allowing for any expense - this is referred to as ‘paying yourself first'.
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It is an inefficient use of your hard-earned money to be sitting in short-term savings accounts earning significantly less interest than if they were invested more appropriately. After establishing emergency funds and clearing any short-term debt, it is then a good idea to commence regular investment in growth assets so that your money is working harder for you. This is where ‘cash management' meets ‘investment planning'.
