Today’s finance topic is one that we have alluded to in past financial and money management posts, but we have yet to discuss in length and detail regarding what we would consider an important financial topic…that of having multiple savings accounts.
When we think of savings accounts, very often the thought is that most households have a checking and a savings account. But, did you know that you can actually make more progress on your savings goals by having multiple accounts? This is a trick and a financial hack that we have been doing for years.
What do we mean when we say multiple savings accounts? Well, have you ever set a savings goal, or something that you are saving your cash for to buy with cash (and avoid that dreaded four letter word D.E.B.T.)? Of course you have, most all of us have! And it is a fantastic goal and should always be the goal whenever you need to make a significant purchase outside your normal monthly budget.
But, often we do not have merely one goal in mind. Rarely are we only saving for one thing at a time, waiting to meet that goal before starting to save for the next goal. Instead, most of us are frequently saving for multiple things at once! For example, we are currently saving for our next car, next vacation, next home improvement project, etc.
If we were saving for all of these in one account, it is very easy to lose track, thinking you’ve finally reached a goal and then spending that hard earned/saved money, just to realize that you depleted the savings account goals for that family vacation or realizing that you are starting over on saving for that next vehicle.
When you are a smart money manager, it really does require a game playing strategy. Smart-money moves is the name of the game.
Once we became debt-free many years ago and continued to set goals for staying that way, we quickly found that the one savings account was not helpful in the least. So we researched savings account options online and discovered how easy it is to set-up multiple savings accounts for multiple purposes. It has been revolutionary in helping us decide how we are going to spend our cash. We have 12 different savings accounts currently.
Let us break it down for you:
First off, let’s get six of them out of the way. Six of them are for our six children – one each. We deposit their allowances and any monies they earn directly into their accounts and then they keep track of what they are allowed to spend (we follow the 10/50/40 rule with them from the start). However, when they have decided that they want to spend something from their 40%, then they have to identify what it is (like a Lego set or horse riding lessons – both common expenses around here :)) and can use their money they saved for this purpose. They can see their balances online and enjoy watching their accounts grow.
Now for the other six accounts, here’s how we have broken it down (it does change frequently based on the time of life we are in and our family’s needs, but here’s the current accounts):
- Emergency Fund (which then becomes the General Savings Account) – we follow Dave Ramsey’s rule of having a fund of $1,000 regardless of whether you have debts or not. Everyone needs one. And if you want to seed yours with $1,000 FAST, you need to follow the steps in this books How To Get $1,000 in 30-days! After becoming debt-free, it is a good idea to fill this emergency fund with 6 months of expenses in case of job loss or other situation where you need money to cover your bills for at least 6 months.
- Christmas spending account – we’ve discussed that we put in $5-$10 per paycheck, or 5% of our income starting in January of each year. We generally start Christmas shopping around August (as these are when big clearances on kids toys begin as the retailers make way for the new Christmas toys).
- Vacation account – We generally deposit 10% of our earnings into our vacation account.
- Home improvement account – The percent of amount changes from 10%-30% based on what home improvement goals we have in mind that we are saving for. We don’t always need 30% 🙂
- Education fund – We do homeschool our children so this fund is extremely useful for us; however, we believe this fund is a good idea for all families, regardless of education choices. This account not only covers our materials for homeschooling, but music lessons, extra-curricular activities, additional equipment, tutoring, additional specialized training, karate, sports, etc.
- Future vehicle fund – Ever since getting out of debt, our goal and desire continues to be to buy our vehicles with cash. This savings account will be a forever fund. The amount we contribute varies based on other goals at the time, but we are always attempting to seed this fund every time we get paid so that when the day and the hour comes that we need a new vehicle, we can buy with cash.
Now this may seem like a long, daunting, annoying checklist of accounts, but it is actually very freeing, relieving and smart!
Recently, I wanted to get new carpet. Now suppose I only had one savings account. If I saw that we had $xxxx.xx amount of money in my savings account, then no big deal…right? So I buy my carpet I want and re-carpet my house as I have all of the excess cash to do so, only to discover a month later that we need money for a new computer for our homeschool, but our savings account is no significantly less – not to mention that Christmas is around the corner, there goes more of the money. All of the sudden, a savings account is a “how much do I have right now for the immediate need right now?” It becomes a game of “catchup” all of the time!
But, now with my multiple savings accounts its much more organized and peaceful. If I say I would like new carpet and I have $xxxx.xx amount to spend, it keeps me in check in this category, it does not deplete my savings or significantly reduce it, but keeps the whole system in check and provides a healthy balance to our financial lives in each of the important financial areas. We will be able to re-carpet and take that family vacation too! It’s not either/or. It’s we can do both within reason and within this allotted budget!
Really, other than about 10 minutes per pay period to transfer the appropriate amounts into each of the savings accounts online from home (less time if you have them set up for auto deposit), there’s not much time needed to manage this! These accounts grow organically as you slowly seed them. But you will find more freedom than ever in your spending/savings accounts.
The only other work involved is setting up the accounts initially! Now note that you don’t have to use the same bank that you bank at. In fact, it might be better not to because it doesn’t give you as easy access to spend freely from them. What we recommend is find account options with great returns because the goal is to build this accounts and watch them grow! Bankrate is a perfect outlet to discover the best and most competitive options as they compare savings accounts of all kinds and quickly show you the best rates and ways to go.
In our day and age of online banking, you can set-up multiple accounts and easily manage it all from home. We found accounts that are free and require anywhere from $5-$100 initial deposit and maintain a low minimum balances. This makes it manageable no matter how big or small your savings accounts will be.
What do you think of this idea? Is it something you would do? How many accounts do you think you need?
Compare your best options for savings accounts online in a one-stop research spot at Bankrate HERE.
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This is a sponsored conversation written by me on behalf of Bankrate.com. The opinions and text are all mine.
Huh, thanks for this. We have 2 savings accounts, but that was more of an accident. But we spend freely as needed and do seem to hit a road block often because we run out by overspending on one category. I do think we should do this as it probably would help. I am sorta dumbfounded that I hadn’t thought of it!
I used to have a bunch of accounts for different things. Now I use YNAB. I record how much money I have allocated for each savings goal, but keep all the money in one account. I still have a few accounts because I like to collect the highest interest rate so avoid withdrawals from long term savings accounts. So I have an everyday spending and bills account, then a short term savings account and a long term account. Check out YNAB, although I think they have moved to a subscription service since I bought the program. A good spread sheet could probably do the same job. You don’t need all the accounts if you have an easy way of recording what you have allocated your money to.
I do this. I have mine all in my Capital One 360 online account so I do get both the individual totals for each fund, plus a grand total summary. Some funds don’t have as much in them as I would like, but this really helps me a lot.
Glad to hear it!