Heyyy friend!
I feel like I haven’t spoken about money in a while so I wanted to pop in and share some of my bank account tips that I share with my other friends!
When I help people with their budgets and explain where to allocate certain percentages of their income, I often get asked “How many bank accounts do I need?”. The answer is: it depends.
There is no black and white answer but I do have a few suggestions on the types of account I RECOMMEND each person have (not including business accounts… that’s for another post). To keep things as simple as possible, I will break them down into types of CHECKING ACCOUNTS and SAVINGS ACCOUNTS.
But to be clear: you technically only NEED at least 1 checking account and 1 savings account. But if you tend to overspend when all your money is in one bucket, this post is for you. If you like organization in different areas of your life, including money, this post is for you.
I want to note that I AM NOT A FINANCIAL PROFESSIONAL OR EXPERT. I am just a girl who loves to talk money, save money and share what I know. Any tips shared should not be taken as financial planning advice, I am just sharing what works for me and rooting for your financial success 🙂 Now back to the regularly scheduled program…
Before I get into the good stuff, I want to quickly explain why I think it is important to have multiple accounts instead of one checking and one savings. I believe you can be more successful at your money goals if you have clearly defined pots to catch your money in and make some of the money less accessible/convenient to get to, which helps with the saving goals. I will get more into that when we get to the savings section. When you make a plan for your money, you can *hopefully* eliminate the oh so common trend of over-spending money and not knowing where it is going. Assign a task for each dollar, and stick to the plan! Okay, now on to the good stuff.
Checking Accounts
Bills checking account
Setting up my BILLS checking account honestly changed the game for me! After you do your budget, identify how much you want to spend in the various categories (think non-negotiable bills like rent, fluctuating bills like electricity, groceries and household, debt pay-down, shopping and eating out, etc) it is time to make sure the money goes where you tell it to. I like to have a bills account where I put the money for student loans, car insurance, etc that I know is coming out every month. I set my paycheck payment so that half of the monthly bills total get automatically deposited into the account, from my biweekly pay, so I never “see” that money. It goes right into the bills account and the bills are automated to come out of it. I just monitor occasionally to make sure the deposits and withdrawals are still running smoothly.
By doing this, I NEVER again overspent and had to scramble to pay the important bills or forgot to make a payment a day late (and incur fees). I don’t see it to spend, and it is out of the way for me.
If you are self employed, freelance or have another situation where your income isn’t as predictable as a biweekly paycheck, it would take a bit more planning to automate the bill payments. You may have to manually put in the money when your checks roll in, but the plan should still be similar. Know how much is needed for the month and deposit the appropriate amounts 2 times per month, or whichever amount of deposits that work for you. I would also add a 2-3 month cushion just in case you have some months that you do not make enough to deposit the needed amount.
Play checking account
Now that your bills are out of the way, it is time to allocate funds for your “fun” account. I call it a fun account because this is money for things I don’t NEED but it makes my life worth living. For example, monthly mani pedis are not a “need” but if it is important to you and part of your self care, you need to factor that into your budget. Also eating out (not groceries) are considered fun to me because they make my life easier but also need a limit. I have a separate account and card for this where a set amount is automatically deposited each paycheck. I know once those funds are done, I am cut off until payday. It’s okay though because my bills will already be taken care of and so will my other necessities (which we will get into next).
Catch all checking account
In this catch all checking account, I have the money that was not taken out for bills, fun or savings (which will be in the next section). From this catch all account, I have an allocated budget for household necessities and other items that are not bills but are also not really play. An example is my eczema medications. I know every month or 2, I have to pay for them but it is not necessarily a bill, though they are important.
After those flexible necessary expenses, and after your main savings have been taken care of, I do not spend what is in that account unless I have to. At the end of each pay period, whatever is left over gets divided and reallocated into my various savings accounts. I also invest with the extra money in my catch all account.
Savings Accounts
Emergency savings account
This savings account is going to be the most important one! You do not want to get caught without an emergency savings. As we are living during these COVID times, we know why all too well. Anything can happen unexpectedly and you want to give yourself a few months to figure things out without having to scramble to pay the bills the following month.
A safe amount of emergency savings is 3-6 months of expenses AT LEAST. This included things you HAVE to pay like rent/mortgage, food, kid’s school tuition, etc. I would say a safer bet is over 6 months but up to a year.
The plan is to keep this money in an account that is easily accessible, like the savings account attached to your checking at your main bank. That way, when in a pinch, you can access that money right away.
Another tip is to have this money be the first thing you pay when you get paid. So automatically, I would have your desired amount deposited into your emergency savings. It’s pretty easy to set up with every bank. THEN you can start spending and allocating other money. I like to think of this as prioritizing yourself and paying yourself first. Once you are taken care of, then you pay the bills.
I know the thought of saving 6 months of expenses may seem very intimidating, trust me I’ve been there, but it is necessary. So even if you start small by saving $20-50 per paycheck towards it, over time it will grow. And having a little cushion is better than none. That is why having it automatically deduct from your paycheck is a good practice. That way it is already out without you having to touch it, which eliminates the need to keep it or temptation to use it for other non-emergencies. This money never makes it into your catch all checking account so it isn’t accidentally spent.
Long term saving accounts
Once you’ve established an adequate emergency savings, it’s time to think about other savings goals. What are your goals? Mine are to buy a multi unit property, start a savings account for my future children, etc. Those are accounts that I start and never touch that money. It is set aside for a goal in the future (think 8+ month out.. or in my case maybe years out).
This account takes discipline because when something comes up, it is very tempting to “borrow” money from the account you won’t need to use right away. DON’T DO IT. Only in case of emergency that your emergency savings couldn’t even cover. You owe it to your future self to let that money sit and grow.
Speaking of growing, I do not put this money in my regular bank’s checking account. You essentially lose money because the rates these big banks pay on checking (0.01%) is lower than the rate of inflation! That is why I only keep the emergency funds there for convenience. For the long term (and other) savings accounts, I put my money in online banks that have a higher interest rate. I love Ally and at one point the rate was 2.5%. Now that COVID hit, it is temporarily down to 1% but that still beats what the other banks are giving. Let your savings grow and this is one way. There is also other methods like investing it with target date accounts that calculates the percentage of stocks and bonds depending on how close you are to the target date. But those are topics for another post and honestly there are financial processionals who speak at length about it and others that you can find. NerdWallet is a great resource.
I also have multiple savings within my Ally account with specific names so I know what each one is intended for. I do not recommend one large “long term savings” bucket because it is not specific enough. Once you get specific, it is easier to stick to the plan. But that is a personal preference. They are all free and easy to open.
Short term savings accounts
If there are long term savings accounts, of course we have the short term! This can be for things like your upcoming birthday plans, travel savings, new car funds, etc. Again, like the one above, I get specific with what each account is used for and it makes it easier to stay the course.
At the end of each pay period, I allocate my left over money into one or multiple of the savings account types. One tip is to not have a card for any of these accounts! And do not have it at the same bank where you normally spend from. This makes your savings money inconvenient. You will likely have to wait several days for the money to transfer to your main bank for use, and you cannot withdraw from them at an ATM without a card. It’s the best thing to help it GROW. I only check those accounts twice a month (when I am allocating money into them) so that I don’t get tempted to “borrow” because we know how that goes…
Those are all of the types of accounts I use and my reasoning behind them. Let me know if this was helpful and if you would use this method to organize your finances as well. Or if you have an alternative yet effective method, share those as well! Leave me a comment as we all share our money resources.
This was a fun post and I hope you get something out of it that you can use! I will see you in the next post.
With love,
CoCo
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