Going Broke to Win Big! The Ultimate Way To Budgeting

To err is human and frugal living is a necessary element to building long term wealth. At the very least, one has to spend less than one earns to accumulate savings and give oneself a chance of making profitable investments. The financial community has beaten to death basic financial practice such as: Paying oneself first, saving early and frequently to maximize compounding, and budgeting. Hence, we’ll skip these common sense practices here on Financial Samurai, and go for a new method of building wealth: Going Broke to Win Big.

The concept of Going Broke to Win Big is simple. Essentially, if you see nothing in your bank account, you’re going to do the darndest to try and build some savings and wealth. You’re also not going to be tempted to spend frivolously, either. I don’t literally mean bankrupting yourself, but simply create three separate banking accounts, and not just three separate accounts within one bank.

If you are like me, you’ve blown yourself up through dumb investments and unscrupulous spending in the past. The key is to protect yourself, from yourself, and create that renewed sense of urgency to forge ahead and stay disciplined in your finances. You may laugh at the concept of protecting yourself from yourself, but everyone of us has the means of blowing ourselves up financially every single day. We are bombarded with temptations and we have collectively taken down the economy with overspending in recent years.

Below are the basics of “Going Broke To Win Big.” Create three separate bank accounts as follows:

1) The Go Broke Bank. The first bank account is for working capital needs, namely where your paycheck goes, and where you pay all your bills. This bank is your operationally efficient bank which has the best tools for bill pay with the most branches for accessibility. Citibank is a good example, a ubiquitous bank with good online tools, but provides ridiculously low savings rates and horrible credit card rates. Bank #1 is where you are constantly “Going Broke.” Your paycheck must be managed so that it lasts to cover all your expenses. But before you pay all you expenses, you must pay yourself first by transferring your target savings automatically to a Bank #2.

2) The Freedom Bank. The second bank is strictly for long term savings via money markets and CDs. This bank may not have as big of a footprint, but it doesn’t matter because you don’t need to access money from this bank. That’s what bank #1 is for. Due to lower overhead, Bank #2 provides better long term savings rates. Online banks such as Ally, and boutique banks such as First Republic provide fantastic rates, often 500-100bps higher than the competition. Do not tempt yourself by creating a checking account. You want money to easily come in (ever notice tellers don’t require IDs when depositing?), but very difficult to go out.

3) The Lockdown Bank.
The third and final bank is for your debt, namely mortgages, personal loans, and car loans. By loading the majority of your debt with one bank, you compartmentalize your debt which may relieve you of any mental stress related to this debt. It’s easier to tackle your debt at one bank and employ the “Snowball Method.” Furthermore, from the bank’s point of view, you may get better rates given you are such a good debtor customer. You’re buying debt in bulk from Costco if you will, and in normal times, they want your business and will give you discounts. During crisis times, it’s also good to have all your debt in one place b/c your bank doesn’t want you to cause a default cascade and will do their best to work with you.

For insurance purposes, one should set up a “checking plus” account which serves as an insurance mechanism just in case you go past $0 in your main checking account.  I’ve come close, and have breached zero multiple times over the years, and the $5,000 checking plus account I have has served as a handy buffer.  I’ve never been over by more than $300, and interest on $300 for one day is nothing.  A checking plus account should be free. If it’s not free, ask for it to be free, and if they don’t budge, find some other “go broke bank” to use.


All banks strive to cross sell as many products as they can. They try and capture you with rewards points and so forth. The goal is to protect yourself from spending unscrupulously with the commingling of monies through one bank, and to force yourself to actively manage your budget. Humans are weak, and we need to constantly remind ourselves to focus on our finances.

After using the “Go Broke” system for the past 5 years, I know exactly what’s going into and out of my checking account within 10 dollars. When the fuel tank is running low with only $200 left for the month, I should probably go on a nature hike than go play poker with the buddies this weekend. Lavish spending has gone out the window since employing this method as well. I pretend everyday that all I have left in the world is in Bank #1. The dearth of money keeps me motivated to work hard, keep on budgeting, and focus on my finances. Meanwhile, the growth of savings in Bank #2, and the decline in debt in Bank #3 is optimized and automatic.

Recommended Action For Increasing Your Wealth

* Manage Your Finances In One Place: Get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and when my CDs are expiring. I can also see how much I’m spending every month. If you are interested, they can even provide tailored financial advice for much cheaper than traditional wealth managers.

* Check Your Credit Score: Everybody needs to check their credit score once every six months given the risk of identity theft and the fact that 30% of credit scores have errors. For over a year, I thought I had a 790ish credit score and was fine, until my mortgage refinance bank on day 80 of my refinance told me they could not go through due to a $8 late payment by my tenants from two years ago! My credit score was hit by 110 points to 680 and I could not get the lowest rate! I had to spend an extra 10 days fixing my score by contacting the utility company to write a “Clear Credit Letter” to get the bank to follow through. Check your credit score for free at GoFreeCredit.com and protect yourself. The averaged credit score for a rejected mortgage applicant is 729!


Financial Samurai – “Slicing Through Money’s Mysteries”

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. Anonymous says

    Good idea Samurai-san. It's just too easy to cheat and transfer money in between accounts at one bank. Lock that money up at another bank and protect it at all costs! That cost being us!

  2. Anonymous says

    Yesterday, when the market was up 2%, I shorted the heck out of the Dow Jones. Well, the market proceeded to go up another 1% and I lost $4,000 b/c I bought the double short Dow ETF, DXD. DARNIT! If I had that money locked away in a CD, I never would have lost. But, no risk, no reward I GUESS. I hate the stock market.

    Jobless claims still over 500K this morning, mkt up 6% in two days, and the market STILL wants to rally today? Give me a break. Sold to you guys!

    The Trader

  3. The Road To Meaning says

    I like this method. I agree that humans are weak and tend to fall into temptations easily since we are bombarded by the media on a daily basis.

    Personally, I use the old fasioned paper and pen budget method. I spend less than I earn and all left over money gets deposited in various investment vehicles. Human beings are unique and should find a way that works for them.

    Keep up the great articles

    • says

      Sounds good Tom! Yeah, it’s important to keep checking at a razor thin level due to the lack of interest return. I did that for a while, but was still too tempted and often just “stole” from my checking to pay for wants. No more! All is flushed away to other banks so it makes my grubby fingers more difficult to click away my financial freedom!

      Thnx for visiting, and looking forward to hearing more from you in the future. FS

  4. Sandra says

    Hi there. Just found your blog. I did something similar several years ago. I was strapped for funds (single with two boys and going to school) and needed to get a handle on my finances. I don’t like surprises and they kept popping up wrecking my monthly budget.

    A friend suggested that I take my annual, semi-annual, and quarterly bills, divided them by the number of pay checks in a year and deposited that amount into a savings account. I did this by direct deposit each payday into a credit union separate from my checking credit union. This was wonderful because finally my monthly budget became more stable.

    I still needed an emergency fund and started another savings account for that. After reaching my emergency savings goal, I diverted the emergency fund money to paying extra on my bills which I paid off except for the mortgage. Then I diverted that amount of money into a permanent untouchable savings account.

    I now have some stability that has served me well now that the economy has turned down. Keep up the good work. Hopefully others can see there are ways to establish a measure of financial security in a tough situation. This is a good plan. It worked for me.

  5. says

    I follow something similar as well. Paycheck goes in Checking, leave money in there for bills and groceries. Rest goes in a high-yield savings account. From there I have setup automatic payments where it goes into various investing accounts.

  6. Bryan says

    This article definitely inspired me to set this up for myself, despite the fact I track my budget religiously on Mint. I have setup only a Going Broke Bank and a Lockdown Bank for now because I’m more focused on paying down high interest rate debt than long-term cash savings. Debt I will be paying out of my Lockdown Bank:

    Monthly expenses:
    Mortgage and property taxes – $6k
    Student loans – $2k
    Backyard / landscaping financing – $1k
    Furniture financing – $500
    Vacation – $500

    This will make things A LOT more simple when such a significant chunk ($10k) of our after-tax paycheck ($16k) goes to paying fixed debt.

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