The Best Budgeting System: Go Broke to Win Big!

On July 15, 2009, I introduced the “Go Broke To Win Big” budgeting system to help readers better manage their money. Today, having a strong budgeting system is more important than ever. There is so much uncertainty in the world, having a financial plan is supremely important!

The Go Broke To Win Big budgeting system enabled me to leave the rat race in 2012. It also enabled my wife and I to remain disciplined financially, despite a raging bull market that ensued.

Now that economic uncertainty has returned, the budgeting system has provided us much-needed calm. Perhaps this budgeting system will help you boost your finances over the years as well.

What Is The Go Broke To Win Big Budgeting System?

To err is human. Frugal living is a necessary element to building long-term wealth. At the very least, one has to spend less than one earns. Give yourself a chance to make profitable investments.

Trust me. Nothing is more wonderful than having an army of passive income streams fighting to defend your freedom!

The Go Broke to Win Big budgeting system is simple. If you see nothing in your bank account, you're going to feel broke. When you feel broke, you're going to try your hardest to build back up your savings. With little-to-nothing in your bank account, you'll also be less tempted to spend frivolously.

When I say “go broke,” I don't literally mean bankrupting yourself. Instead, I suggest creating three separate banking accounts. Having three separate banking accounts is not to be confused with having three accounts with one bank.

If you are like me, in the past, you've blown yourself up through dumb investments and unscrupulous spending. To prevent financial mishap, the key is to protect yourself from yourself.

Feel Poor To Get Rich

You know what one of the easiest ways to go broke is? Feeling rich. If you feel rich, you may start loosing your discipline to save.

For example, before the pandemic hit, my wife and I hadn't gone through a budget analysis in years because we felt rich enough. Once things started getting scary in March, we finally went through a budget and income audit. We did so because we started to feel poor.

During our budget audit, we questioned every expense. We discovered we were overpaying for many things.

One no-brainer expense we cut was my wife's life insurance cost. She was able to double her death benefit amount and save on her monthly premium. Score! We then cut our cable cost and mobile phone bill as well.

It's important to always create that renewed sense of urgency to forge ahead and stay disciplined in your finances. Not only will feeling like you don't have enough money naturally make you want to save and earn more money, you'll also increase your side hustle discipline.

After stocks and real estate prices surged higher after I left work in 2012, it would have been extremely easy to slack off on Financial Samurai. But in order to stay disciplined, I reminded myself that everything could go back to hell in a hurry.

You may laugh at the concept of protecting yourself from yourself. However, everyone of us has the means of blowing ourselves up financially every single day.

We are bombarded with temptations online to spend all our money. We suffer from investing FOMO when someone is making a fortune on a funny money tech stock.

Collectively, we successfully took down a large part of the economy in 2000 when the NASDAQ bubble pop. Between 2008-2009, hundreds of thousands of people took out mortgages they couldn't really afford.

Today, the excesses seem to be relatively better controlled due to much tighter lending standards. However, you can count on at least a segment of the population to take more risk than they should.

Basics Of The Go Broke To Win Big Budgeting System

In order to successfully implement my budgeting system, you should ideally create three separate bank accounts. Each bank has its own main function, although they can all do similar things.

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. Utilize direct deposit, automated bill pay, etc. It should have the best tools and the most branches for accessibility. Given fewer people want to go into a branch anymore, your Go Broke Bank should have a great mobile app with a high enough mobile deposit limit.

One example of a Go Broke Bank is Chase. Chase has many branches domestically and internationally. However, it doesn't offer a high savings rate. Therefore, you wouldn't want to keep your savings at this bank.

Your Go Broke bank is where you do the most banking transactions. You are looking at your balances the most frequently with your Go Broke Bank. As a result, you are also constantly reminded of how little you have.

Your Go Broke Bank should have a selection of rewards credit cards where you can earn points and charge all your transactions. For example, the Chase Freedom Unlimited card is a good selection if your Go Broke Bank is Chase. You get 1.5% cash back on all purchases, can earn a cash sign-on bonus, and there's no annual fee.

Before you pay your expenses, your goal is to pay yourself first by transferring as much savings automatically to bank #2, The Freedom Bank.

2) The Freedom Bank

The Freedom Bank is predominantly 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, the Go Broke Bank, is for.

Due to lower overhead, The Freedom Bank provides better long-term savings rates. Online banks such as CIT Bank almost always provide a higher savings rate than a Go Broke bank with a large brick and mortar presence.

With your Freedom Bank, do not tempt yourself by creating a checking account. You want money to easily go in, but not easily go out. Notice how a bank teller never requires an ID when depositing a check, but does require an ID when withdrawing? Interesting! The more friction to withdraw your money, the better.

This friction to withdraw your money is one of the reasons why investing in real estate, private equity, and venture capital can be so successful. Because you commit to investing your capital for years, if not decades, your chances are higher that you will make money.

For disciplined investors, stocks have also shown to provide great returns over the long run. But today, it's so easy to sell for free that some stock investors tend to panic sell at inopportune times.

Your Freedom Bank is also where you can hold most of your stock and bond investments. Once again, your goal is to try and only contribute to your public investment portfolio and not withdraw. The less you touch your investments the better.

Ideally, you want to automatically contribute to your accounts and forget about them. If you keep most of your public investments in your Go Broke Bank, your temptation to fiddle with your investments will increase.

3) The Lockdown Bank

The third and final bank is the Lockdown Bank. The Lockdown Bank didn't get its name due to the months of sheltering-in-place in 2020. The Lockdown Bank is for your debt, personal loans, and car loans.

As the entrepreneur J. Paul Getty once said, “If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.

During crisis times, it's good to have all your debt in one place. Your bank doesn't want you to cause a default cascade. As a result, your bank may be more willing to create a debt workout plan with you in case you're feeling the crunch.

By loading the majority of your debt with one bank, you also compartmentalize your debt. By doing so, you may relieve any mental stress related to this debt.

It's easier to tackle your debt at one bank and employ various debt pay down methods. One popular strategy is the Debt Snowball, where you pay down your smallest debt first, regardless of its interest rate. I personally always tackle the highest interest rate debt first to save the most amount of money.

Further, you may get better rates given you are such a good debtor. It's like buying debt in bulk from Costco. The more debt you buy, the greater the discount.

Embrace A Strong Budgeting System

All banks strive to cross-sell as many products as they can. They try and capture you with rewards points and so forth.

The Best Budgeting System: Go Broke to Win Big!

Your goal is to protect yourself from spending unscrupulously with the commingling of monies through one bank. This way, you will be forced to actively manage your budget. We humans are weak, and we need to constantly remind ourselves to focus on our finances.

After using the Go Broke To Win budgeting system since 2009, I know exactly what's going into and out of my checking account within 10 dollars.

When the tank is running low with only $200 left for the month, I start changing my behavior. I'll either cut down on the poker playing or figure out a way to generate more cash flow.

Lavish spending goes out the window since employing my budgeting system as well. During times of uncertainty, I pretend that all I have left in the world is in my Go Broke Bank.

The dearth of money keeps me motivated to keep on writing, keep on budgeting, and keep on focusing on my finances. With financial discipline, The Freedom Bank should continue to grow while the debt balances at The Lockdown Bank should continue to decline.

For The Very Wealthy And Disciplined

If you are very wealthy, you will definitely want to adopt some form of my Go Broke To Win Big budgeting system. After all, the FDIC only insures up to $250,000 per person and $500,000 per joint account in case of financial catastrophe.

By spreading your money around to many banks, you better protect your capital. Nowhere was this more apparent than during the 2008 Global Financial Crisis and the bank run experienced by regional banks in 2023. History often repeats itself. Strive for three banking relationships to protect your assets.

However, if you feel you've developed enough discipline, then going with two banks works just as well. The more accounts you have at one bank, the better you will be treated. Better treatment means lower borrowing rates, lower transaction costs, and higher quality service.

Reader Questions And Recommendations

Readers, what type of budgeting system do you use to grow your wealth and keep track of your finances? How many banking relationships do you have?

Sign up with Empower, the best free tool to help you stay on top of your finances. With Empower, you can track your investments, see your asset allocation, x-ray your portfolios for excessive fees, and more.

Pick up a copy of Buy This, Not That, my instant Wall Street Journal bestseller. The book helps you make more optimal investment decisions so you can live a better, more fulfilling life. You can pick up a copy on sale at Amazon today. 

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 

About The Author

25 thoughts on “The Best Budgeting System: Go Broke to Win Big!”

  1. Hey Sam, What do you suggest for each of these banks? BofA has an incentive structure that makes it better to have all your savings with them including brokerage and this improves the credit card rewards as well, but Goldman’s Marcus has the best savings rate on it’s own for example. Can I get a better deal by having everything with BofA than to split?

    If I did split what would be optimum? Have the credit card with Chase, and the savings with Marcus, then what? The brokerage and the debt with who?

    Do you have an opinion on the HSBC Premier account?


    1. Hi Lucas,

      You should split if you can get the best terms. If not, then you can try focusing everything on one bank with multiple accounts, which they love. If you do, ask them what rates you can get.

      No opinion on HSBC. I’m a Citibank Private Client and business client with Chase.


  2. “This friction to withdraw your money is one of the reasons why investing in real estate, private equity, and venture capital can be so successful.”

    I’m real estate heavy for this reason… No fun blowing up a brokerage account.

    1. Ain’t that the truth. Everybody needs to find their maximum equity account threshold. If you’re feeling stressed out with your investments all the time, it’s very counterproductive.

  3. Don’t have separate banks, but we have three accounts that are linked: joint checking, my savings and my wife’s savings. The checking pays the bills, my savings is a clearinghouse for my investments, hers is a cash stockpile because that is how she rolls*. We also use the same bank (credit union, actually) for our primary mortgage, because we got a great rate (2.875%) and it’s easy to pay extra, when fate allows, from either of our linked savings accounts.

    * I’ve tried telling her that lazy money loses weight with time (inflation), but its a comfort thing for her. I’ve also told her that her money should be working to make more money rather than sitting on a metaphorical couch eating potato chips all day long, and I’m hoping that when the stockpile gets big enough she will put some of it into investments.

  4. Hey Sam. You know how you get all these stats updates daily. Like bond yield – is there a post explaining where you get them from? Now you taught us how to analyse the number, I kinda wanna see the number myself and track it going forward. I’m doing your FS iTunes review now too, you rock!

  5. I used to be meticulous with my budget years ago when I was trying to build my wealth. I used excel as the tracking and budgeting tool.

    I don’t keep track of my budget as closely as I used to now given that my household spending has gotten into a good groove the past couple of years. We hover around an annual spend amount.

    I still track my net worth to make sure it is growing at a good clip. That is how I can keep tabs on if my expenses are getting out of hand by seeing if my net worth is going up at my targeted amount.

  6. spaceassassin

    We use excel. I have one workbook for each year with about 10 worksheets (Bills, CC1, CC2, CC3, Spending, Work Income, Other Income, Summary, Projected Summary, Banks, Retirement, Money).

    The Bills, CC1, CC2 and CC3 all feed the Spending sheet, which is the most important sheet for us. Each expense on those sheets is funneled into 30 different categories (from the previous sheets). The spending sheet shows our categorized spending, income, savings for each month and provides comparison to last year via averages. Simple conditional formatting for above/below discrepancies point out the differences YOY and I review them on an ongoing basis.

    We cleaned up (i.e. cut) the cable/internet/streaming service bills about 6 months ago as the expense kept climbing. The cell phone bill was addressed in May and so forth. These sheets make it easy to track the creep in costs overtime, no matter how slow the creep.

    The banking sheet shows the actual bank account balances at three “banks,” two online, one physical. We keep minimal money at the physical bank. I have never been too concerned with our banking relationship. I have personal relationships with a couple brokers outside the bank, so I always go through them for financing.

    The retirement sheet tracks the various retirement account locations.

    The money sheet tracks net worth by month including cash, retirement, house equity and outstanding loans monthly.

    13 years invested in this system, the data set is huge and helpful. We started when we married because money was tight and now that we are much better off then we once were, we track so we can trim and cut back when not only necessary, but when spending gets lost.

    Tracking and categorizing expenses is a huge step. Once you know where every dollar is going, it makes it a lot easier to ensure they are going where you really want them to.

  7. Agree 100% that when you feel too wealthy you get complacent about shopping around for a good price or you fritter money away on useless things. We have 2/3 of our net worth in real estate which is forced savings in paying down those mortgages (with rents of course but we are always the backup when they’re vacant). The rest is in paper assets in retirement accounts that we can’t tap till 59 and 1/2. For our big reserves we use a HELOC so there is incentive to pay it down quickly. We don’t keep a cash reserve — no need. We’ll just consult more if we really need pre-retirement cash, tap our HELOC, or worst-case sell some paper or real estate. It does keep you hustling and not too complacent.

  8. Social Capitalist

    Good article. Pull money from my checking accounts to my Fidelity account(and into Investments) for awhile now. Glad to hear you agree with the strategy.

    We should never discount that we are just as susceptible as the next guy. Reminds me of sitting in traffic complaining about traffic. I made the choice to add to the problem, when I m in it either suck it up or pull off the road.
    Better idea, don’t drive (put the money in a safer place).

  9. Canadian Reader

    I use an app called Wally to track all of our household income and expenses. My husband and I funnel 100% of our in-flow money together into one chequing account. We share one physical credit card. I manage all bills and transfers out of this account. After that, we are spread out to 6 banks with over 20 accounts. The key is running all daily expenses/purchases through 1 credit card. It’s not that we don’t have the freedom to ultimately purchase whatever, but we have found this was the best way to work as a team at respecting and growing our money together. Have I mentioned how much I hate leakage?? Haha

  10. I follow a similar system that I call the “digital envelope system”. Money for recurring bills stays in my main checking account. Money for groceries, supplies, and other non-recurring payments goes in the 2nd bank account – this is the debit card I carry around and use. When the account is empty, I’m done for the pay period.

    The third & fourth accounts are savings and brokerage. If my high-yield savings account is “full”, I deposit directly into my brokerage account. The deposit amount is predetermined based on my budget and is transferred on pay day.

    This system has worked well for me the last six years.

  11. 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.

    1. Great plan I have been following similar strategies for some time now can has leave a tremendous impart on my finances. It has also help been a cure for my money madness

  12. 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.

    1. Landscaping financing and furniture financing? You need to throw the whole budget out the window

  13. Tushar@EverythingFinance

    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.

  14. Tom @ Canadian Finance Blog

    Great plan! I follow a similar idea and my main chequing account is always near $0 since I only leave enough in there to cover bills and automatic investing, the rest goes to debt reduction.

    1. 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

  15. The Road To Meaning

    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

  16. 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

  17. 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!

Leave a Comment

Your email address will not be published. Required fields are marked *