This is step 4 in our 7-part Bipolar Finance series.
Have you ever been in a situation where you have been working really hard to save up for something special, only for that saving to disappear into thin air during a manic phase? All the holiday savings, house deposit savings and car savings gone in a flash of madness?
Step 4 in the Bipolar Finance series is designed specifically to keep your savings safe. It’s a very simple step that will not take long to do, but will save you much heartache and guilt of having lost your savings to a manic spending spree.
All you have to do is lock away your savings so you can’t get to them easily.
If you have money that you really don’t want your manic self to touch (such as inheritance, or money you put aside for specific things such as deposit for a house), then lock that away somewhere that you cannot touch it. You need to formalise any vague saving plans you’ve had into defined pots of money, and lock them away in specially chosen savings accounts that suit each pot’s need.
Step 1: Make a list of your savings
Besides the Bipolar savings account we discussed in Step 3 of Bipolar Finance, what things are you saving for? A holiday, a car, a house, a handbag, or even a boat? Write each of them down and how much you have already have saved. Do you have any pots of money that are sitting around that you don’t want to touch (such as inheritance)? Then write those down on the list too.
If you don’t have a saving for a specific purpose, but have been saving anyway that’s okay too. Just make a conscious decision as to which part of your savings you really do not want your manic self to touch.
Your list might look like this:
- House deposit (£3000)
- Car savings (£1560)
- Holiday savings (£680)
- Inheritance (£2000)
Step 2: Work out the needs of each saving
In order to match your savings with the most suitable bank accounts, you need to consider the needs of each saving. Do you want to keep adding to the savings pot? Do you need instance access to it? Are you likely to want the cash with short notice or is it something that you will plan ahead? Do you need the money at a specific time?
Taking the above list as an example, you might be still building up your house deposit, so the need of this savings is to be able to add funds at any time. On the other hand, you are happy with how much you have saved up for buying your next car, so being able to add to it is not a problem, but you’re not quite sure when your current car might die, so you need instant access to it. You’re also happy with how much holiday money you’ve got saved, but you have no plan to go on a trip yet, and you tend to plan these things well in advance. You’re quite happy to not touch your inheritance, so you want to keep this as locked away for as long as possible.
Your list might now look like this:
- House deposit (£3000) – need to keep adding
- Car savings (£1560) – don’t need to add but need instant access
- Holiday savings (£680) – don’t need instant access
- Inheritance (£2000) – want to keep it locked away
Step 3 – find the most suitable savings account for each pot
Now you need to have a look at different types of savings accounts that are available in your country. You should select the savings account that best meets your saving needs. Each account should make it most difficult for you to get to the cash, without stopping you from taking out the cash when it is needed for its intended purpose.
The following list is based on saving accounts available in the UK.
Instant access savings account – you can put money in and take money out at any time with no notice, and no penalty (usually). This is the least safe account from your manic phase. If you do decide that instant access is the best option for you, here is a quick tip. Open up the instant savings account with a bank that cannot do instant money transfer to your current account. If you can find a bank that takes three working days to transfer the money, that’s three days you have to stop yourself from spending that money, which is better than having no cooling off time.
Instant access with penalty on withdraw – you can get access to your money whenever you want, but there’s usually a penalty for it. For example, you might get 3 withdrawals a year free and any further withdrawal will result in you not receiving any interest that month. In return you do get a higher rate of interest. This type of account is ideal for being able to put in money whenever you want to, and having instant access to the money, but makes you think twice before you withdraw from it. This type of account would be ideal for things like car saving where instant access is important.
Regular savings account – you set up a fixed amount (normally up to £250) a month to be transferred to this account for a fixed time period (usually 1 year). This account is great if you are committed to putting away a set amount each month. So if you have a set amount to put away for your house deposit, and you are not going to be buying a house for the duration of the account, this would be an ideal account for you.
Notice accounts – some accounts will let you withdraw money but you have to give a notice that you are going to do so and set number of days before your withdraw. The length of notice can vary anything from 30 days to 180 days. The advantage of this account is that you have to plan well ahead to access your money, but you do still have access to it if needed. This account is good for big ticket items, since you should be planning ahead for items such as once in a life time holidays and house deposits.
Fixed rate bonds – this is the most hardcore of putting your money away. Fixed rate bonds promise you a non-changing interest rate, for a fixed period of time (usually 6 months, 1 year, 2 years, 3 years or 5 years). You get the best interest rate out of all the savings account described here, but most will not let you withdraw before the time is up. You should think very carefully about when you are likely to need the money. It’s ideal for savings that have a fixed date or money that you want to keep safe long term, such as inheritance.
So now, you can decide what type of accounts would suit each of your savings pots. Go for accounts that make it most difficult for you to access the cash on a manic spending spree, but still let you withdraw the money when you need it. Here are some suggestions for our example savings pots:
- House deposit – need to keep adding – regular saver or notice account that allows you to keep adding.
- Car savings – don’t need to add but need instant access – instant access with a fixed number of free withdraws per year.
- Holiday savings – don’t need instant access – notice bond or instant access with fixed number of free withdraws per year.
- Inheritance – want to keep it locked away – fixed rate bond.
Please always be aware of any penalties that are associated with any savings account before you apply. Some will charge you a hefty fine, or not let you withdraw the cash at all until maturity. MoneySavingExpert has a brilliant guide that explains all the different types of accounts and things you should watch out for for each account.
Set up those savings accounts and put away the money so it’s safe. Once you complete this step, you can rest assure that your savings are now much safer from your manic self. Locking your money away or at least putting in some cooling off period before you can get your hands on the cash will surely reduce the likelyhood of you spending all your savings in a spending spree.
Bipolar Finance series:
Intro: Introducing the Bipolar Finance series
Step 1: Get motivated!
Step 2: Know your spending pattern
Extra: How to draw your mood history chart
Step 3: Become a squirrel
Step 4: Lock away your savings
Step 5: Go cash only
Step 6: Serve eviction notice on your cards
Step 7: Spending the Bipolar savings without guit
I am not a financial advisor nor a medical doctor (as I always say, I’m a doctor of computers). The steps in this series are things that have personally worked for me. What I would really like for you to do is read about each step, and see if they may help you in controlling your spending. However, if you don’t think it’ll help you, please do not carry the steps out.