Many of us start our banking journeys with one checking account and one savings account at one bank. We get in a groove with these two accounts and often omit the idea of opening more in an effort to keep things simple.
This can work for many people, especially those who are exceptionally organized with their finances and are regularly keeping tabs of their spending.
But, what if I told you there was a better way? What if I told you that having more accounts would actually simplify the way you spend and manage your money? This is true even for those of us money nerds who actually enjoy tracking our spending. Just me? I digress…
Truly, though, I believe that more is better in this case and I recommend having at least 3 bank accounts for managing your personal finances. So grab a cup of coffee and settle in as we discuss these accounts and how to use them.
Account #1: Main Checking Account
Consider this account as the main stomping grounds that feeds into each of your other accounts. This account is a workhorse and has 3 jobs.
Job #1: House your income. It is into this account that I recommend having your income deposited.
Job #2: Pay your monthly bills using autopay or bill pay. Keep in mind that when I say “monthly bills” I’m talking about anything you pay for by a certain due date in return for an item or service. This includes your rent/mortgage, utilities, cell service, daycare, streaming services, insurance, etc.
Job #3: Transfer money into your two other accounts, which are as follows…
Account #2: Spending Account
This is the account where your day-to-day spending will take place throughout the month. We’re talking about groceries, dining out, entertainment, pet supplies, etc. Anything that does not have a due date attached to it, this is where you will house and spend the money for those items.
What this does is creates a one big virtual spending envelope. It protects you from spending money that would prohibit a bill from getting paid or that would otherwise go towards a savings goal.
And here’s the really cool thing, once you get the hang of pacing your spending to what you have available in your Spending Account, you’ll find that you really don’t need to track every nickel you spend at that super hipster coffee shop you like to visit. Also just me?
Of course, if you’re finding that you are spending all of the money in this account well before your next paycheck, it may be time to do an audit on your spending and look for areas where you might choose to pace yourself.
This takes time, patience, and persistence but eventually it really does become second nature and will save you enormous amounts of time and energy when it comes to budgeting.
Account #3: Savings Account
The Savings Account is going to house the money that will fund your non-monthly bills as well as your other goals and dreams.
Remember your Main Checking Account? It is from that location that you will be transferring money into your savings account.
I recommend transferring this money at the end of the month, once all bills are paid and you know nothing crazy has come up that would require using some of that money for something of higher priority.
The trick here is to make sure you aren’t using this money as extra spending throughout the month. If you do, just be aware that this extra spending will affect your future goals.
And there you have it! These are the 3 accounts I recommend everyone utilize when managing their personal finances.
But wait! The fun doesn’t have to stop at just 3 accounts! My motto is this: “When in doubt, open an account.” Once you get the hang of these three accounts, here are some others you might consider opening.
Other Accounts to Consider
Spouse Spending Accounts: If you’re married and combine your income or live off of one spouse’s income, you might find it helpful to open up separate checking accounts for each spouse.
My husband and I call these our “Allowance Accounts.” We agreed upon an amount that we each get to spend without permission (though still within the principles we’ve set for our marriage), knowing it won’t affect our family’s spending, bills, or savings goals.
These Allowance Accounts have been game changers in the way we manage our money!
Separate Emergency Fund Account: Everyone needs an Emergency Fund. I wrote a blog dedicated to this very subject.
Once you have your emergency fund built up, I recommend opening up and transferring it into a separate savings account. This would preferably be an account that has favorable interest rates and can be accessed fairly easily and quickly.
The idea here is to keep it mostly out of sight but to still be able to access it in case of an immediate emergency.
Auto-transfer after you’re in a groove: Once you get in a groove with your separate checking and savings accounts, if you’re finding that the amounts you are transferring into each account are consistent from month-to-month, you might consider setting up automatic transfers.
This will streamline things even more and will make your Main Checking Account almost completely hands-off. I recommend only doing this once you’ve really gotten in a groove with the system and are sure your needs for spending, savings, and bills will be met in each account.
Don’t allow overdrafts: Some banks are allowing overdraft withdrawals without fees. That’s a sweet thought but defeats the purpose of sticking within the spending boundaries that you have set.
If you’re regularly withdrawing money from other accounts to cover expenses then this system won’t be as effective and it might be a clue that some adjustments need to be made in your budget.
High Yields Savings Account: I recommend setting up a high yield account for most, if not all, of your savings accounts. Most online banks will have higher interest rates because they are not brick and mortar and have a lower overhead.
Just make sure to do your research and ensure they don’t also come with a bunch of fees!
Start with a Financial Snapshot: If you’re unsure of how much money to put into each of your accounts, you might want to start by undergoing a Financial Snapshot exercise. I’ve put together a blog post walking you through how to set one of these up.
Once you get your numbers together, you’ll have a good idea of how much money to allocate for bills, spending and saving.
There are so many ways to organize and utilize your money. By starting with these 3 accounts and expanding upon them as you see fit, I’m confident you’ll start to feel more in control of your money.
Of course, if any of this is confusing or sounds overwhelming, fret not! We have personal finance coaches on stand-by who are excited to help you come up with a plan that is personalized to you. Set up a call with one of us and we’ll be sure to get your finances moving in the right direction.