How to set up your bank accounts to build your portfolio!
Although I have numerous properties across my portfolio I only have 3 bank accounts. There is a very good reason for this and as always it revolves around my Set & Forget Philosophy.
1. My Current Account
This is my main account that I have everything come into and go out of. Rent from every property goes straight in here, mortgages come out, my credit and charge cards have either minimum monthly or full balance come out.
In my case I use Natwest, not because they are the best but because when l first arrived in the UK, they gave me an account.
I use their Private Banking services, it costs me £225 per year but I get a £10,000 overdraft and charge card. I also have a direct line to my Manager who will sort anything I need including CHAPS and other payments by fax. This means I rarely go into a branch, leaving me time to do what I want. I think you need £50k income or more for this particular account but a normal current account will do.
Using one main account also means that when I apply for mortgages I only ever send one set of statements for proof of my credit worthiness.
It also makes it easy to manage the state of my cashflow. Using a software package like Ezytrac, I can easily see my bank balance in any given week into the future. The gives me even more peace of mind and allow me to forget about my bank accounts for a period.
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2. Savings Account
I still to this day put aside money each month into an account. When I first arrived in London I was labouring for a couple of weeks while l found a full time position but I still put aside £20 every Friday. Three and a half years on and that figure is £500 per month.
The importance of this is not the money but the discipline, the absolute discipline of putting an amount each month for investing. This account actually bought my first property in the UK. I had saved £3000 and had taken a £10,000 personal loan.
Saving an amount each month will take your focus off your debts and refocus them on the money you have to invest. Investors create opportunities because they are open to them. People in debt tend to focus so much on the negative so that they actually create more negative. It’s a vicious circle, so that having even £20 in savings to focus on makes a huge difference.
3. Provision Account
This is a vital account in my Set & Forget Philosophy because it gives me peace of mind when those large yearly bills come in the mail. Imagine this; you are building a portfolio and twice a year your Service Charge bill comes in, its £600. Now most people would probably stress a little over how to pay this bill. Now imagine that you have 10 properties and they all come in at once (which generally happens), the total comes in at say £4500. Now definitely most people would stress over this.
Set & Forget is all about never stressing over anything in your portfolio or life. So what we simply do is add up all the ground rent, service charge, and any other significant bills over the year and divide by 12. This will give us say £11,400 per year or £950 per month. So we simply set up a standing order from our current account to our provision account on the day after our payday.
We have now Set ourselves up for when the bills come and we can forget about worrying about it.
When the £4500 in bills comes in I simply write a cheque from my current account and transfer that amount from my provision account. Easy and best of all no stress.
It might seem a rather simplistic approach to banking but I have used this for over 8 years now and it works a dream. I can focus on the more important things in life and stop worrying about the small things like paying bills.
Live with passion,
Brett Wood
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