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21st Century Banking

As always, every Monday in my accounting class, my mind is wandering. Today I was thinking about a revolutionary idea in Online banking that benefits both the customer and the bank. I was thinking about how a relatively simple change in Online Banking could allow customers to easily separate their cash into separate “logical” buckets. These virtual or “logical” buckets appear as separate bank accounts and are named by the customer to cater toward their regular expenses.

Think for a second about how a company manages their Accounting records. When a large purchase is made such as purchasing machinery or the purchase of a building, the cost of that asset is amortized throughout the length of time that the asset is used to generate revenue. (Sorry for the lame accounting lingo). When you go shopping on the weekend and end up spending $500 on clothes, it is a fairly substantial one-time hit to your bank account. When you have these types of purchases, it’s hard to create a budget for yourself and stick to it. Wouldn’t it be easier to stick to a budget if you were able to amortize the cost of those clothes throughout their useful life? Well it’s not practical to estimate the useful life for a pair of jeans, so my 21st century banking idea basically meets the same objective, but with a much more simple process.

Your bank account has a separate logical account called “Clothes”. Every week you have an automatic transfer from your regular bank account where $20 is moved into your logical “clothes” account. So if you’re the type of person that only goes shopping every few months, your clothing account will add up to around $240 after 3 months. You would then transfer the money into your regular account and go to the mall and spend this money. You can have as many of these logical accounts as you like. One for automobile repairs, rent, beer fund, or you may even have your strip club fund. ;). Since the accounts are logical, the bank doesn’t need to officially open a new account for each one. Technically your account could still be in your chequing account, but logically separated via Online Banking.

This concept allows you to budget your pay cheque and assign it to buckets to help you manage your money and stick to your budget. I know this would help me out, and the banks would also prosper from this concept because people would manage their money better and the banks would presumable charge fees for this convenient service. The alternative solution is to take money out of your account every time you get paid and put them in separate envelopes, but this is also not practical, so I think it’s time for the banks to implement this idea.