In a previous post, I discussed the start of organizing your finances. If you missed this one, you can go back and read it here. Today I would like to continue with that post and discuss something that my wife and I do that helps us tremendously: keeping multiple accounts.
I’m not talking about just a checking and a savings account. I am talking about using different accounts for different purposes. Overall, we use 6 different bank accounts. To some this may seem crazy. The idea of having to manage 6 different account might be paralyzing to some people. Contrary to that thought, it actually makes it a million times easier to stay organized. Why? Because each account has its own purpose and we setup our income to be deposited into these accounts accordingly.
Here is how it works. Of these 6 accounts, 3 of them are savings accounts and 3 of them are checking accounts. Let’s start with the savings accounts. These 3 accounts are used for separate things. One account is our general savings account. This account we use to save up for any large purchases we plan. The second savings account is for savings for our kids. This is money we have set aside for things such as school or whatever large purchases may be needed as we teach and guide them to also defeat normal. The last savings account is our emergency fund. You never know what may happen in the future. Trips to the ER, unexpected car repair, last minute trip to help family. Before I started my journey, I always told myself that’s what credit cards are for. Not anymore. Why risk having to rack up more debt when you work so hard to pay it off? It is always important to maintain an emergency fund, and no, swinging through Starbucks because you forgot to grab your morning coffee from home does not count as an emergency.
Next, the checking accounts. These require a little more explanation, but it’s where I have seen the biggest impact in our finances. The first checking account is used for our everyday-type purchases; gas, groceries, clothing, car maintenance etc. It has the same purpose most people use a checking account for. Easy peasy.
The second is a bills account. What? Isn’t that what any checking account is for? Don’t people typically have their check going into their checking account and then they pay their monthly bills? Yes, that’s true. But since the majority of people live paycheck to paycheck, how many times have you gone to pay a bill and you need to somehow add funds to your checking account because you overspent on groceries, entertainment or dining out? Not anymore! By having a separate account solely for paying bills, you can add up you monthly expenses and have this amount deposited into the account. This way, no matter how much is spent out of your other account for everyday purchases, you know you will always have enough in this account to cover the bills.
Lastly, we use a house account. This is similar to the bills account, but it is solely used for our house. For our current house, we have a mortgage, association dues and a special assessment. The association due are only once a quarter and the special assessment is only paid one a year. However, the assessment is a very large bill. Although it is only due once a year, we have taken the amount and divided it by 26. This way, a certain portion of our bi-weekly paychecks goes into the house account to cover this. Then, when that giant bill comes, there is no need to worry because the amount is already sitting in the account. This same principle applies to the mortgage payment as well; half set aside from each check.
When we first set this all up, I admit, it was a little overwhelming. But after just a couple months, everything fell into place. I have never felt so organized with my finances before. Having accounts with different purposes takes the work out of trying to allocate funds within one account. If this sounds like something you would be interested in, give it a try. After all, checking and savings accounts are free. (You do have free accounts, right?!) It may not work for everyone, but I can say that it has given me and my wife a boost on the path to defeating normal.
I always welcome feedback, questions, comments and concerns. Please feel free to comment below or you can also reach me directly at firstname.lastname@example.org.