Sarah is a homemaker and stay-at-home mom who enjoys writing about motherhood, healthy living, finances, gardening, and all things homely.
Still Using Only Two Bank Accounts? There's a Better Way to Manage Your Money!
We did it too, put all of our money in two accounts—one checking account and one savings account.
We were paying our bills on time, sure. And yes, we were saving a little and paying a little extra on our debt, but we just weren't getting the traction with our financial goals that I was looking for and I was driving myself bananas trying to keep everything straight. Sound familiar?
I tried the envelope system, but that was a trainwreck. The hubs didn’t love the idea of carrying cash around everywhere. We make regular online purchases. We were constantly funneling money from one envelope to another or I would decide last minute to run to the store on my way home from somewhere and—you guessed it—didn't have the envelopes. Like I said: train wreck.
We were constantly overspending and as a result not able to pay as much on our debt as we wanted. Trying to keep everything straight, like,
- "How much money do we need to keep in the account for next month's bills?"
- "Can I spend $100 on clothes this week?"
- "How much extra do we have to pay off debt this month?"
This was a constant source of stress and frustration. Cue the fighting.
Multiple Bank Accounts
Then I heard an idea that changed the way we do banking forever: Multiple Bank Accounts
Yes, separate bank accounts. Stay with me, now. We all grew up learning that we should have two accounts: one checking and one savings. But, how many times have you or your spouse accidentally overspent the budget because you each made a purchase the other wasn't planning on? Had to choose between paying a bill on time or buying groceries for the week? Had to forgo that extra debt payment to get through the last week of the month?
If you had one account for bills and one account for spending, you would never "accidentally" spend your bill money or extra debt payment again.
If money was automatically transferred to savings, you wouldn't be "surprised" in October that Christmas was just two months away.
If you and your spouse had separate spending accounts, he would never "accidentally" spend the grocery money on five months' worth of chicken feed and grass seed!
But I digress…
What you need—what we needed—is different accounts for different purposes. That's just what we did. We opened up several FREE checking and savings accounts and named them according to their purpose: "Sarah's spending," "Emergency fund," "HSA." You get the idea.
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It took a few months to work out the kinks, but then something magical happened. We were building our savings and paying off debt faster than ever before, and all because our spending was much more under control.
So how many accounts should you open? The following list is what I would recommend, and what we have done ourselves. You might need a few more or less, depending on your savings goals or marital status, and other financial needs. Use this list as a guideline and go from there.
Checking Account #1: "The Bill Account" or "Family Checking Account"
This is the hub through which all of your money flows. Think of it as the holding tank for your money until it heads off to fulfill its mission. All earned and/or regular family income goes into this account and every week on payday, your savings and discretionary spending auto transfer to their respective accounts. All money left in the account is for bills and debt payment only.
Never, under any circumstances use this account for any spending other than your set monthly bills and debt payments.
And while I'm telling you what to do, make it easy on yourself and make the checking account you already have the family checking account. Otherwise, you'll have to go through and change every automatic bill and direct deposit and you will hate life. Don’t do that to yourself. Just don't.
Checking Account # 2 and #3: His and Hers Discretionary Spending Accounts
These are your weekly spending accounts. One for you and one for your spouse. All of your weekly spending—groceries, gas, restaurants, clothes, auto repairs, kids activities, and everything in between—comes out of these accounts.
Take a look at everything you each spend money on in the month. If you haven’t done this already, set your budgets and divide up the spending responsibilities.
In our family, I am responsible for groceries, pets, kids needs (clothes, diapers, school supplies, etc), my personal care needs (clothes, hair, toiletries, etc.), and miscellaneous household needs. My husband usually fills my car up on the weekends, so he is responsible for gas, small car or home repair—things like light bulbs, or windshield wipers—lawn and garden stuff, his pocket money, and our restaurant/ family fun money.
Of course, sometimes he'll run to the grocery store, or I will need gas in the middle of the week. Maybe I'll ask him to pick up something from the grocery or he'll ask me to buy grass seed at the store while I'm there. We aren't super strict on which account it should come out of. It usually all works out in the end.
Every Friday, our spending money is automatically transferred to our accounts and each of us are only responsible for our own accounts. As long as I am taking care of our household needs, I am free to spend the rest on anything I want, no questions asked, and vice versa.
Checking Account # 3 "Family Medical" or "HSA"
Let me guess. You thought an HSA was only for people with qualifying healthcare plans.
Well, technically you aren't wrong, but anyone can open a checking account for the sole purpose of saving for healthcare needs. Tax benefit or no, I highly recommend a separate account for medical spending. Co-pays, eye doctors, dentists, orthodontics—not to mention those emergency room bills that no one ever sees coming—those bills add up and it's nice to know you have some money set aside to pay for all things medical.
I can't tell you enough how awesome it is to not worry one bit about the eye doctor co-pay or to know that in 2 years, when your kid needs braces, you will have the money to pay for them because you've been putting back for them for the last 3 years.
Savings Account # 1: "The Emergency Fund"
What is an emergency fund? This is your S%^& has hit the fan money. Money in this account is for true financial emergencies only. I'm sorry to say that Christmas presents, a new computer, and new school clothes are not emergencies. Overspent your pocket money and now you don’t have grocery money? Not an emergency.
So, What is an Emergency Fund for? This money is only for true emergencies: the radiator went out on your car, your furnace went out or—heaven forbid—you lose your job. I'm talking unforeseen, major expenses here.
Ideally, you want to have 3–6 months' expenses saved in this account in case of a job loss, medical crisis, or some other huge emergency. Dave Ramsey suggests keeping $1000 in this account until you are out of debt.
While I agree with him in principle, for us, $1000 is just not enough. Maybe Murphy hits us extra hard, I don't know, but it seems like every few months we have a major car or home repair that wipes out our emergency fund. We are left in a panic with no money in the bank and making no progress on our debt for several months until we can build it back up.
We lived for years that way, and my nerves can't take it anymore. We try to keep about one month's worth of expenses in this account for my own sanity. We are maybe adding 2 months to our debt snowball plan by keeping this money in savings instead of paying on our debt and I am okay with that. You do you.
Once you're out of debt, you ideally want to have 3–6 months of living expenses saved in this account.
I know, that feels like a lot.
Set up a reoccurring auto draft to transfer 10% of your income into this account every paycheck and forget about it. It will be there when you need it.
And at some point, you will need it.
Savings Account #2: "Family Savings" or Savings Goals Account
This savings account is where you'll save for all of your short term savings goals: Christmas, home maintenance, a new car, car maintenance, vacations, back to school needs, annual bills, etc.
This must be a separate account from your emergency fund, and you may even want to have multiple savings accounts for different savings goals. Maybe you'll want one savings account for that new car or vacation you are saving for and one for everything else. Online accounts are free and easy to set up, so experiment and do what works for you.
Set a savings budget and set up auto-draft payments from every paycheck into each account and then, don't look at it. Say it with me. "Set it and forget it!"
Pretend it's not even there.
You can spend this money on anything really, but if you spend it for everything, you won't have money for anything when you need it.
So, don't use this money to cover your random shopping urges or to cover you when you overspend. Get your spending under control and save this money for the things that really matter to you, like Christmas presents for your kids, that trip to Disney, or even an extra debt payment.
Most of the money in our savings account is earmarked for a purpose, like Christmas or our family vacation, but we do add a small amount each month that is just marked "Misc." This gives us the freedom to be spontaneous and cover unexpected wants or needs while still saving for our bigger goals.
Savings Accounts # 3 and # 4 His and Hers "Fun Money" or Slush fund
This is the one account (or two accounts) that shouldn't be auto-drafted. These should be connected to each of your spending accounts, respectively and can act as overdraft protection. At the end of every pay period or month, transfer any extra money from your spending accounts into these accounts.
This is your reward for staying under budget for the month/pay period. Use the money to pay extra on your debt or save for that vacation/activity/shopping spree that you can't fit into your regular budget, or just save it for a non-emergency rainy day or expense like back-to-school shopping or a month where your spending needs are greater than normal.
I transfer any extra money from our spending accounts into these accounts at the end of every pay period. This keeps us from overspending now just because the money's there so that later, when I realize all four kids need shoes, or we want to take a trip up north to see my in-laws, we don't have to worry about how to pay for it.
Other Accounts You Should Consider
Of course, there may be other accounts you might want to consider adding to this long list if you are feeling brave, like savings accounts for your kids. Let's be honest, a savings account is a much better place to put their birthday and Christmas money if you aren't going to let them spend it right away.
As they get older, you could fund their account with the money you would usually spend on their allowance, clothing, hair, and etc., and teach them how to manage and budget their money.
You'll also need separate checking and savings accounts for businesses or rentals—things like that. We keep a checking account, general savings and tax savings accounts for our side business.
So, there you have it. I know, it feels like a lot to manage, and yes, it's going to take a few months to get used to. But, I promise it is well worth the effort! Have more questions? Ask away! And, if you are going to give this method a shot, let me know how it's working for you in the comments below!
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2019 Sarah