Saving enough money to buy your first home can be a daunting task. This is made more difficult by the many temptations that entice people to spend money such as holidays, clothes and home appliances. This spending could be covered by credit cards or personal loans. However, these only depress savings towards a first home and reinforce unsustainable spending, putting people in a lot of debt that can be hard to get out. As someone who saves as much money as possible while cutting down on unnecessary spending, I find it easy to save money towards a first home deposit. However, I used to feel uncomfortable spending on guilty pleasures that would make me happy for fear that I have wasted my money. It was not until two years ago that I learnt and implemented a system that balances saving and spending. Now, while I am still saving towards a first home, I feel less anxious spending on things and experiences that make me happy. 

In this blog post, I would like to describe the system that I use to balance saving and spending, allowing me to save towards a first home while spending on present things and experiences that make me happy without feeling guilty. 

The basics of the Fast and Slow System

I first heard about the Fast and Slow System during a seminar that Max Phelps delivered. In the seminar, he described how to set up your bank accounts and optimise your cash flows between accounts so that you can save money towards your first home while spending money on holidays, unforgettable experiences and guilty pleasures that make you happy without feeling uncomfortable or anxious. You can learn more about the system and how he developed it in his book Spending Fast and Slow, a book that I highly recommend. In this blog post, I’ll just give an outline of the Fast and Slow System and how I have adapted the system to my needs. 

The Fast and Slow System is attuned to the fact that our cognitive biases and elements of the modern world such as electronic banking encourage us to spend money as quickly as possible. This system is designed to slow down our spending by introducing friction in how money flows between bank accounts. Friction is introduced by setting up bank accounts over two banks: bank A which is for achieving savings goals and paying the bills and bank B which is for everyday spending and guilty pleasures. By separating our bank accounts over two banks, we can identify that money in bank B is okay to spend, but money in bank A needs to be saved up to cover our bills and savings goals. Having bank accounts over two banks also allows us to reduce the amount of money that is readily available to us. This is done by:

1. Making it as difficult as possible to readily access money from bank A. This can be done by leaving the bank A card at home, unlinking the card from our phones and watches and deleting the bank A app.
2. Making it relatively easier to access money from bank B by carrying around a physical card, linking the card to our phones and watches and having the bank B app in our phone. 
3. Setting up an automatic transfer from bank A to B so that a set amount of money is paid weekly from bank A to B to cover everyday expenses. 

Having less money available in bank B induces us to spend less. This allows us to save more money towards a first home deposit while having enough money to cover everyday expenses, guilty pleasures and holidays without feeling guilty about it.

How cash flows in the Fast and Slow System

The Fast and Slow System consists of at least five bank accounts over two banks. Bank A has three bank accounts: 

1. Bills: the account where bills get paid. This is also the bank account where our income initially lands and gets distributed to other bank accounts.
2. Future: the account where we are saving money towards our long-term goals such as a first home deposit.
3. Holidays: the account where we are saving money to go on holidays, without resorting to a credit card or a personal loan. 

Bank B has two bank accounts:

1. Everyday: the account being used to cover everyday expenses such as groceries, meals out and drinks.
2. Fun: the account being used to cover gifts, special occasions and guilty pleasures. 

In terms of how cash flows under the system, within bank A, income initially lands on the bills account. Any bills get paid in that account while money gets allocated to other accounts. We set aside a portion of our income towards our savings goals. To save towards a home deposit, we typically save at least 20% of our income. However, if we are living with our parents where there are no additional living expenses, we can save 50% of our income. We also transfer some of our income to the holidays account to save towards local and overseas holidays. 

In contrast, we only transfer enough money from bank A to B to cover our everyday and discretionary spending. A set amount of money should be transferred to the everyday account weekly to cover our weekly expenses such as groceries, meals out and drinks. Conversely, money should be transferred to the fun account monthly so that we can either have fun or save towards big events such as birthdays, anniversaries and Christmas.

This system allows us to save money to achieve our future savings goals, while setting aside an amount of money to comfortably cover our everyday and discretionary spending. Under the system, we can take a proactive approach to how we save and spend money, balancing fun with financial stability. This is in contrast to reacting mindlessly to insufficient savings or unsustainable spending which force us to quickly cut back, depriving us of some happiness.

How have I adapted the Fast and Slow System to my needs?

Before hearing about the Fast and Slow System, I previously had one everyday and two savings accounts in one bank. All my pay would go into the everyday account, where I would set aside some money to spend over the fortnight, transfer a set amount of money to the holiday account and whatever was left to the first home deposit. Although I was saving a lot of money towards my first home, I did not have an account to cover my discretionary spending on guilty pleasures. This made me feel anxious about spending money that was designated for everyday spending. Hence, I did not spend much money on experiences and things that I would have enjoyed for fear of feeling guilty about it.

However, after learning about the Fast and Slow System, I set up two bank accounts in another bank and used that bank to do my everyday and fun spending. I kept the existing bank accounts to pay my bills and save money towards my long-term goals. After moving to different banks and some tweaking, I have found an optimal structure based on the Fast and Slow system that works for me. You can see the banking structure that I use below.

All my income still lands in the bills account, where I pay my bills and transfer money to other accounts. I keep at least $1,000 in the bills account to pay my bills and to cover any unexpected expenses. Within bank A, I set aside:

1. 33% of my income to the home account to save towards my first home.
2. 10% of my income to the holiday account to go on holidays every year.
3. 10% of my income to the investment account, where I invest in index funds to build my wealth.

I transfer a set amount of money weekly into the everyday account in bank B to cover my weekly expenses such as public transport, groceries and medicines. For the fun account, I pay a set amount of money fortnightly to see my money grow in that account. I use money from the fun account to purchase things and guilty pleasures that I desire such as video games, clothes and anime merchandise. 

However, I am still a saver at heart; I don’t spend all the money that is available in bank B. Instead, any money that exceeds the maximum amounts in the everyday and fun accounts gets funnelled into a third bank account labelled overflow. I can use money in the overflow account to make big or expensive purchases such as furniture, home appliances and gaming machines. For example, I recently bought a gaming PC using money that I saved in the overflow account. This not only gave me the satisfaction of using my own money to buy something that I desired, but it also gave me a chance to wait for other gaming PCs to release so that I could compare them before purchasing the best gaming PC for me during the Black Friday sales.

With the system in place, I am still saving towards a first home deposit while having enough money to cover my daily and discretionary spending. This has reduced my anxiety and has allowed me to buy things and experiences that would make me happy without feeling guilty about it.

Conclusion

Using the Fast and Slow system, I am able to cover my living expenses and spend on things and experiences without feeling guilty. At the same time, I am able to save a lot of money towards a first home while going on holidays and starting some investments. Depending on your goals, you can adapt the Fast and Slow System to suit your needs. It just depends on what you want to achieve in your life, saving enough money in your savings accounts and setting a specific amount of money to sustain reasonable weekly and discretionary spending.

I am also saving money for a first home deposit through superannuation. Learn more about it in the next blog post in the series.

References

Phelps, M. (2024). Spending Fast and Slow. Major Street Publishing Pty Ltd

Financial advice disclaimer

Anything that is posted on The Active Evaluator blog is for general informational purposes only. You should not interpret this information as formal financial advice. If you would like advice tailored to your personal situation, please seek an accredited professional. I am not responsible for any subsequent actions you take by reading my blog as well as any expenses, costs, losses, damages and injuries you or another person may incur in the process.