Financial architecture

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A lot of things that are built to withstand the test of time go through proper architecture. I’m sure there are more contexts to use the term architect but the most common I encounter are with structural architects and software architects.

Architecture is used mostly in housing because houses are the most appreciating common asset that humans are capable of creating. There are many more assets that appreciate more than housing but many of such things are given to us by earth.

In software, architecture is made for sustainability rather than appreciation. As someone who have gotten to architect some software workflows, I don’t think the goal was ever to have a sturdy impeccable software as we all know there’s no such thing.

Software architecture however can sustain workflows and communication within a team for a given period of time. This leads to why we need an architecture for our finances. For a lot of people, finances are a big variable as income and expense streams may appear or vanish for good or bad reasons. Our personal finance is usually a fluctuating asset, no matter what spectrum of wealth it is fluctuating on.

Like a lot of financial resources would disclaim, the architecture I will be sharing may not apply to everyone as we have unique experiences and situations, but I hope this can be a template/guide to someone else.

Bank accounts - The foundation

How many bank accounts is too many? You tell me. Besides business accounts, I have 8 accounts split across 3 different banking institutions. Admittedly, sticking to 1 or two different banks/credit unions should have been sufficient. I chose to use 3 for a comparable experience across banks I have interest in. You may be able to create as many accounts as you need within a single banking institution. Here’s a breakdown of my 8 accounts

Primary checking: We all have this account where our paychecks come into. For most, all expenses come out of this account too. This account used to be where every income and expense from various payees go through for me, and all I had besides this was a single savings account. Although, I am one for minimalism, I’ve found that it takes a lot more to have a consistent financial structure with just 2 accounts1.

Bills checking: At the start of every month, I pay this account to take care of all my bills including insurance, rent, phone and internet, and entertainment like NetFlix. Doing this requires that you know every thing that takes money out of your account and proactively pay for them before their due dates. This prevents any recurring transaction from getting deducted out of primary checking.

Credit card: You may have as much credit cards as you want but I like to think of this as one because I only use one credit card for home and personal expenses. This complements the bills checking in preventing expenses from going out of your primary checking — the goal is to keep primary checking as consistent and predictable as possible. Once a month, the primary checking can then pay to the credit card, making this its only outgoing payee.

Contingency saving: This is what was once an unnamed saving account that went with my primary checking. I think of every piece of my financial architecture as a minion working for me. If this saving account is a minion, then I need to give it a purpose and goal. It has best served contingencies like an unexpected repair, unexpected health costs2.

Emergency saving: This can get mistaken with contingency saving as they both kind of serve emergencies. What makes the emergency saving different is that you only dip into it in the worse critical situations like losing a job, having a health bill that your HSA and contingency can’t cover. Life throws things we may not anticipate at us sometimes, and we want to be proactive about dealing with such occurrences.

Sinking fund: As I had mentioned before, every saving saving account have a goal and role to play. So many finance resources only enforce frugality and barely mention ways you can treat yourself. The goal with this saving account is to save for the little things you want and not need. The things that make you happy, like buying a playstation 5, some new gadgets, makeup. I love Ramit Sethi’s approach to knowing our money dials and satisfying them.

If you are on something like the FIRE movement and/or will like to remain on a conservative budget, this sinking fund can also be where you save for bulk purchases, down payment for a house, car. To identify the purpose of all sinking fund you have at once, they can be split into buckets which we will discuss later in the article.

Travel saving: This goes with sinking fund as a saving intended for something that makes you live the life you want in the present. Some may place travel saving as a budget within another account, but I prefer for it to be its own account. A lot of times, you may end up using a credit card for your travel to get reward points, but this account’s existence is to reimburse the credit card without affecting all the other accounts with their own unique purpose.

Tithe saving: I pay tithe as a christian but this is not something every christian let alone everyone worry about, this is for those who do. Find a church with principles that align with yours if you are a christian. In such situations, I recommend to just find one church that at least seems decent enough to make good use of tithes you send in3. Keeping your tithe away from your other personal accounts helps to not have to think about that as your money. The longer it stays in your personal account while you wait to pay it to the church, the more reluctant you may get about paying tithe.

Budgets - The frame

There are various approaches to budgets and many tools for it. I’ve recommended Debit & Credit several times on this blog because it works just great with my lifestyle. I think YNAB is great because it can be used in many ways, but I’m not a fan of some of the popular ways I’ve seen it used.

Budgets are like additional accounts that guide the structure of our finance. One of the popular approach to budgeting is zero-sum budgeting which I think can be great but not exactly my choice. If you love zero-sum budgeting, YNAB might be a great platform for you.

There are 2 types of budgets I use and I like the flexibility of using them in most appropriate situations without locking myself into one. They are carryover and non-carryover budgets. If you are familiar with the differences between HSA and FSA, the carry-over budgets are like HSA accounts where you get to keep whatever is not used into the following year, and the non-carryover are like FSA accounts where you use it or lose it.

As with my foundational architecture, I like to set myself up for sustainability. In this case, that means starting with budgetting techniques that aren’t so rigid.

In zero-sum budgeting, from my understanding, all budgets are with positive carryover, and for some, negative carryovers too.

Buckets - The interior

Buckets are a breakdown of bank accounts into smaller chunks. Some banks like Ally offer this as a feature. If yours does not, you can use an app like Debit & Credit to create extra accounts that sum up to individual bank accounts.

For the sinking fund account above, you may have the following buckets:

  • Playstation 5
  • House saving
  • New shoes

The concept of buckets prevent you from simply buying things because you can when your money should be serving other more important purposes.

My wife and I have equal carryover budgets each month that we call our splurge budgets. Because this is a carryover budget, we can accumulate it for larger individual purchases in the sinking fund adjacently to our shared buckets.

Conclusion

A financial architecture makes it easier to have a sustainable routine with your money and makes it easier to stick to budgets. For a lot of people newly trying to get into budgetting, a lot of work goes into trying to have a budget and they eventually fall off the wagon. With an architecture, it is a lot more to set up upfront but more systems in place to prevent you from falling off with your finances.


  1. Having multiple bank accounts does not in itself help you have a better financial structure, but it plays a part in the full architecture. ↩︎

  2. HSA’s are similar to contingency account and you may add that to your accounts list if you have medical conditions or are in high health risk. ↩︎

  3. I’m not an active member of the church I pay tithe to, but I see that they feed homeless and take care of people with offerings they get. ↩︎

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