I want you to do a little exercise with you.
Imagine you are running your own business. It can be any business. You start off with a couple of employees to help who are pretty easy to manage and they report directly to you.
Over time though, as your company grows you end up hiring a lot more people.
It becomes a lot tougher to be directly responsible for all these new employees so you create an organizational structure with different department heads to manage the employees and report back to you.
This is much easier as you just need to go to one person for updates for an entire area instead of trying to sort everything out from one big group.
Now in the above scenario I want you to substitute the business for your finances, the employees for your cash, and the departments for your savings accounts.
Do you see how much easier it became to manage your bigger business once you split it up into departments?
If you want to treat your financial life like a business, a great way to get organized for success is to set up multiple savings accounts.
Why You Should Have Multiple Savings Accounts
The “treat your personal finances like a business analogy” is one that I really like. You don’t have to be an entrepreneur to know that the main goal for most businesses is to be profitable (unless you are Amazon).
This should be a top priority when it comes to your personal life as well.
Turning a profit for yourself is the amount of money that you save. The more money you save (and invest) the faster you can become Financially Independent!
Here are a few of the reasons that creating multiple savings accounts can help you with your personal financial life.
Organization
As mentioned in the business analogy from the beginning, having multiple savings accounts is a great way to organize your money and simply your finances.
I’m not sure about you all, but if I only had one account (or two – a checking and savings) it would be too easy for me to lose track of what each dollar is for.
How much of this is for my car? Rent? Vacations? Emergency Fund? Having a big blob of money combined together could make it really confusing!
Instead, have multiple accounts to separate that money and avoid the confusion. Most institutions even have an editable nickname that you can name your accounts to ensure you know what is what.
How many accounts you need, and what they are for is totally up to you. You could have just a couple if you keep your categories broad or several or more if you want to split things out as much as possible.
It doesn’t really matter how much actual money you have in cash. You could have hundreds, thousands or even tens of thousands of dollars. No matter the amount, there’s no better way to keep track of what exactly your dollars are for than with multiple savings accounts.
Track Savings Goals
At any one point in your life you may have several goals that you are saving up for. Examples could include a down payment on a house, a wedding, a vacation or even (like me currently), a rental property.
If you have multiple goals going on at once, how do you differentiate what money is for which goal when it’s all in one big blob of money? Not to mention, that big blob of money also needs to cover your ongoing monthly expenses as well.
With it set up this way it would be way too easy for me to lose sight of everything trying to determine how much money is for each goal as well as my monthly expenses.
In addition, the psychological factor has to come into play as well. When you see a massive chunk of money that does not have a clear and specific meaning to it, it could possibly lead to additional spending.
That additional spending could bleed into some of the money that was actually supposed to be set aside for other goals.
With the money out on its own in a separate account, that money is already accounted for and you know it shouldn’t be touched!
Automation
One thing people fear about having multiple savings accounts is that you could lose track of them all. In order to avoid this, it’s probably smart to keep your multiple accounts within one or between a couple banks.
Pick one that that has a solid interest rate (like the online savings accounts) and also make sure to have one where you ensure you won’t have to pay any fees. We hate bank fees around here!
Once you have this set up, it’s time to get it automated. Many employers have direct deposit that allows you to send money to several different accounts.
If you have a set amount you are saving for your goals (like $50/month for vacations, or $100/month for a down payment), put that amount or percentage of your income and send it directly to your separate savings accounts.
This way you never see the money in your monthly spending accounts and aren’t tempted to spend it!
You can also set up automated transfers between your individual bank accounts if you’d rather not adjust the direct deposit.
Automating your financial life helps to keep it simple and prioritizes paying yourself first.
My Savings Accounts
I’ve talked a big game about these multiple savings accounts. So what does it look like in action?
Personally, I have seven different accounts:
Car Expenses is pretty self explanatory – all my budgeted vehicle expenses go here. This has grown quite large over the past few years from (intentionally) putting a little more in than necessary. Eventually this will go to paying off the rest of my loan.
Emergency Fund is also self explanatory. I don’t keep a ton in here, simply because my separate accounts serve as their own little specific emergency funds in a way (for car and rent – the two bigger expenses).
Living Expenses is for monthly budgeted items like rent, utilities, food. I keep an extra month’s rent cost in here just in case.
Miscellaneous Expenses combines savings for several expenses that aren’t necessarily monthly. Included in here is cell phone bill, car insurance, gift giving and for any vacations. This is the only account I also track separately in an excel sheet to make sure those are all accounted for. I could have created more accounts for these, but they are small enough where it doesn’t give me much trouble.
Rental Property Fund is my latest savings goal which I’ve talked about before.
Side Hustles is my newest one! I’ll write more about what I’m doing there soon, but it’s already growing! Notice how I named it side hustles (plural), even though I’m only doing one… eventually I hope to have others! 🙂
Lastly is just my regular checking account. This is where my direct deposit comes in and where I transfer money to my other accounts so the number is constantly fluctuating. It’s also at a different bank so that I can more easily withdraw/deposit money if needed in a pinch.
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This is just a personal example of how I do things. Feel free to use this as a guideline if you are setting yours up!
Your setup/accounts could look vastly different from mine, but there’s really no wrong way of doing this (unless you are paying fees on your accounts!)
Splitting out your cash into multiple accounts can be a great way to organize and optimize your financial life.
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Do you have multiple savings accounts? Why or why not? How many accounts do you have? Do you categorize by savings goals as well?
I have been a huge fan of this idea for a long time. I don’t quite use as many as you have, but we do share the idea. My wife and I met after our careers were established, and we had already had our own mature savings ideas and plans. In deference to the knowledge that couples often have fights and troubles regarding finances, we have always kept separate accounts.
We each have our primary savings for short term things like vacations or furniture . We each have our high yield savings which is part of our emergency fund. Then we have our joint savings and checking which is how we pay for everything. We periodically fund that account from our personal savings/checking depending on spending.
As our salaries have changed over the years, we even go so far, as to remain fairness, to fund the joint account at a ratio related to our relative incomes. Her income was greater than mine when we got together, but the reverse is true now. The idea initially was to show that I was not taking advantage of her, and now the reverse is true. Not everyone needs to do this, but it works for us. We don’t fight about money.
Anyway, I love your idea. A friend of mine from years back, he got married while we were in our early 20s, and they had a single income. They did exactly this. I thought it was a great idea. He also had another idea worth sharing. They had one account set aside as their credit limit. That savings account was used to pay off the credit card each month. They never spent more on the credit card than what was in that account, and they never paid interest. I use that to this day. It was a great idea.
I think that’s a great idea! Whatever works best for your situation, some couples prefer to keep their accounts split, some combine, it’s really about making sure you’re both on the same page with your money goals.
That really is a great idea! I sort of pseudo do that, as I transfer money from those other accounts into my checking account to pay off the bills every month, but that way is great too!
I have a few accounts right now, but I’ve definitely been debating lately about adding a couple more, especially since I now realize how freaking easy it is to open an account with Ally.
Right?? When I set up that Side Hustles account it was approved and opened on the spot! I don’t think I want to go too crazy opening up accounts(hence why the one account has a few hints combined) but it is nice to know if I ever wanted something separated that it can be done without a hassle.
In building up my emergency fund, I’m currently struggling with the fact that I now have a fair amount of money sitting in cash that isn’t necessarily earmarked. That’s awesome, but I definitely like knowing “this money is specifically my car fund, while this money is an extra two months of rent” instead of having it sit around in one big pool. I’ve got multiple savings accounts for sure, but I set up many of them a while ago and things have changed since then. I might be revisiting how I use some of them/renaming some in the near future.
Woohoo, look at that side hustle account! What are you going to be doing with that money?
Wow miss moneybags over here! 😜 But yea I definitely think it’s a good idea to revisit your accounts periodically as your financial situation changes and/or savings goals change. It’s very easy to rename accounts and move money around if need be!
Haha, I have something like 9 subaccounts. Things like a new car fund, a washer/dryer fund, vacation fund, etc. It keeps me sane because I used to sink into despair (well, at least a mild form of it) whenever I had to take money out of savings for some goal. Especially when it was a vacation. I just kept thinking, “But saaaaavvvvinnnnggggsss!” and not wanting to pull any money out, even for a sanity-saving three-day break from life.
Right!? I didn’t even mention that part of it, but it’s totally true. It’s good to have those separate so you know that you’ve specifically earmarked money for this thing/event/whatever and then you don’t feel bad when you eventually spend it!
Hmm I have to disagree on this one. I think this would only clutter things up and make saving a bit more complicated for me. But whatever works for each individual is the best way to go!
Hey yea to each their own! If it’s easy and simple for you to have it all in one or two accounts, totally keep it that way. I’m a very visual person so seeing that all broken out is what’s best for me!