Are you unable to efficiently manage your money? Then, it’s time to change the way you used to budget your funds. People are using multiple bank accounts for budgeting their money, and it’s working quite well.
Having multiple bank accounts with different banks works really to organize your finances. Although there are other 99 ways to manage money, budgeting with multiple accounts is simple, efficient, and straightforward.
Today, we are going to learn all about using multiple bank accounts for budgeting. From its benefits to the types of accounts you must-have, this piece will walk you through each and everything about budgeting with multiple accounts.
Why Have Multiple Bank Accounts?
The genius behind having multiple bank accounts is that you get to divide your money into separate & distinguishable categories. Instead of using a single account for everything, you use the account designated to the nature of your spending. For instance, you have $500 in your kids’ account; you’ll use the funds in it to spend on your kids instead of using your primary account.
Having separate accounts for the primary and secondary expenditures in our lives makes money management genuinely effective. You get to decide how much money each month you are going to allocate for a specific expense. This makes you stay away from unconsciously spending your hard-earned money and helping you to reach your financial goals.
On the outside, owning multiple bank accounts can look non-appealing and complicated. But in reality, using multiple bank accounts for budgeting has turned out to be a game-changer for people who are serious about their personal finance.
4 Major Benefits Of Having Separate Accounts
Need some more convincing for budgeting with multiple accounts? We have got your back. Here are four solid benefits of using multiple bank accounts for budgeting:
Distinguish Different Types Of Spendings
As mentioned above, using a single bank account for every type of transaction can be a fuss and nightmare, especially if you are looking forward to orderly manage your funds. On the other hand, with multiple bank accounts, you get to distinguish different types of spendings on your financial checklist.
As there’s a separate account for all the significant financial payouts in your life, like emergency savings, you get to classify your money. This lets you see where you are financially standing in your life. And that takes us to the next benefit of using multiple bank accounts for budgeting.
Easy Tracking of One’s Financial Life
When you have different accounts for an emergency, automotive, house repair, business, medical, reserve spending, etc., you get to track how and where your money is invested easily. Furthermore, the phenomenon lets you trace how good/bad you are doing in each financial sector of your life.
To access your multiple accounts, you just need a smart device and an internet connection. Then, with just a few clicks, you can open the dashboard of your bank account to see how your accounts are doing. Then, you can also connect them to third-party money-management apps to make the most out of them.
Long story short, having separate accounts makes it easy to track multiple short and long-term financial goals.
Diversify The Thin Line Between Being An Overspender & Skinflint
Next up, using multiple bank accounts for budgeting helps diversify the thin line between being an overspender and skinflint. Here’s what we mean by that. When a person has a single account, they can easily fall into the trap of spending it all or nothing at all. Why? Because using one account for everything overwhelms a person and blurs the thin line between overspending and saving way too much.
On the split side, when one has multiple bank accounts for separate financial priorities, they get to save as much it’s required and spend according to what they can truly afford. For instance, a person has various accounts for things like emergencies, home, car, fun, etc. The person will make calculated decisions knowing how much money is available in each account.
Helps Staying Focused & Engaged To Financial Goals
Last and certainly not least, multiple accounts help you to stay focused and engaged to your financial goals. Whether it’s about buying a new car, repairing your house, investing in a side-business, etc., having multiple accounts keeps reminding you of your short and long-term money goals.
When you have broken down your money into separate categories, you get to focus on each category with more engagement and focus. For instance, if your emergency fund account would be running low, you’ll definitely cut down some of your fun expenses and allocate them to it. Similarly, your side-business account would keep nagging you that you need to start investing on a side-hustle.
No matter what your wealth goals are, if you don’t have multiple accounts, you’ll start losing focus and engagement to pull them off.
6 Must-Have Bank Accounts
Finally, it’s time to learn about some must-have bank accounts to put the multiple bank account strategy to work. Here are the top six funds you must allocate separately:
Primary checking refers to the account where your money would flow in the first place. It’s your account that’s able to handle ATM withdrawals, inter-bank fund transfers (IBFTs), and everything in between.
Your primary checking account would be the hub of your money. No matter how many businesses you own, it’s where all your hard-earned cash would reside. And then, from here and here only, the money would go into other sub-accounts.
Note that the primary checking account won’t be used to carry out any other transaction than sending money to your other accounts and your fixed spendings like rent, utilities, etc. So you might be thinking, how would I carry out my variable spendings? The answer is…
Reserve Spending Account (Secondary Checking)
Reserve spending account or secondary checking would help you to carry out your variable transactions. From groceries to concert tickets, clothing, shopping, and outside dinners, this account would handle it all for you. A secondary checking account can be used by all people in your house. But you need to cap it to a limit so that it doesn’t run out, affecting your budgeting cycle.
A secondary checking account can also be used to place funds for temporary savings. For instance, buying a coffee machine, computer equipment, etc. However, this account must not be used to buy expensive things.
Next up is the emergency fund account. No matter how rich or poor you are, you always need a backup plan to hang onto, and that’s where an emergency savings account would come into play.
You can set up an emergency account in a bank that provides the maximum interest rate. And then, you can monthly fund it with around 5-6% of your total income. But note that you won’t be able to cash it out for a specific period of time.
We don’t want you to see tough times in your life, but if anything goes sideways, you will thank us for suggesting you open an emergency savings account.
There’s a famous saying, health is wealth. So, regarding the quote, to remain wealthy, you need to take special care of your health. And that’s where a medical expenditures account would be your best friend.
Medical expenses aren’t always emergencies. So, it’s wise to have a separate medical account for yourself and your loved ones. From doctor visits to tests and medicines, the medical fund would cover everything.
We won’t recommend dipping your emergency funds until and unless your medical account is showing 0. And that won’t happen if you’ll fund your med account on a monthly basis with around 2 to 3% of your income.
You won’t be working till your death, right? But you’ll be needing money until your last breath. With a good retirement savings account in place, you can easily live your life after you are done earning without worrying about money matters.
A retirement account would support you and your family when you won’t be working anymore. Most people don’t realize the need for a retirement account, but when they do, it’s often too late. Don’t be amongst those individuals and open a retirement account today with high saving returns. Lastly, we recommend you to at least invest 5% of your income in your retirement account.
Don’t have your own home? Want to switch to a new house? Or simply want to renovate your safe heaven? A house fund account would help you in this regard.
Whether you are looking forward to buying a new house, switching to a new one, or upgrading the one you are living in, money in your house fund account would come in handy. We have listed the house account in the must-have accounts list as there’s no greater blessing than a comforting place to rest your head.
To keep your house fund account pumping, invest 2 to 3% of the cash flowing in your primary checking account.
Other Optional Accounts To Consider
Do you want to make the most of using multiple bank accounts for budgeting? Consider opening the following accounts:
Need to buy a car, switch to a new one or repair the current one? The automotive account is all about it. This account would only have the funds to pursue your auto needs. We recommend putting 1 to 2 % of your income into the account or greater if you plan to buy a new ride.
Husband/Wife Personal Checkings
Get past fighting with your husband or wife and create separate personal checking accounts. This way, you and your better half would be able to spend the money without any strings attached. But it’s essential first to set the budget of the personal checking accounts with mutual understanding.
Parents & Kids Account
You can’t forget the most important human beings in your life, your parents and your kids. They have fixed and variable expenses that you are responsible for. To make things easy, create a separate parents/kids account and deposit 10 to 15 % of your money in the fund on a monthly basis.
General Savings Fund
A general savings fund account refers to the money that you are saving up for short-term goals. For instance, buying a sofa set, investing in new musical instruments, etc. You can open limited period savings account with promising returns in your bank. And when the time comes, you can easily cash it out to fulfill your needs.
As the name suggests, this account would only consist of the money you can spend on traveling/vacations. Note that there are certain banks that provide highly valuable credit cards and debit cards, especially for people on the go.
Personal Fun Money
One needs to chill a bit and do some fun, right? Set up a personal fun money account and monthly deposit a sum of money that would only be used to satisfy the inner desires.
Lastly, you can set up a separate business account if you own some businesses. Compared to a traditional current account, a business account would facilitate you with tons of biz-related solutions.
Steps To Manage Multiple Bank Accounts For Budgeting
Find A Bank
Firstly, find a bank if you don’t have a bank account. Thoroughly research the banks around you that offer different types of accounts with flexible plans. If required, you can open accounts in different banks to make the most of the multiple funds’ strategy.
Setup A Primary Checking Account
Once you have found a bank, it’s time to open a primary checking account. Open your account in a bank that offers top-notch digital services, low rates on transactions, and great overall financial services.
Analyze Your Financial Goals
Next up, analyze your financial goals and pick the accounts accordingly. Identify why you decided to manage your money in the first place and then align your priorities to pick the accounts that attract you the most.
Create Multiple Sub Accounts
Finally, to use the strategy of multiple bank accounts for budgeting, create your sub-accounts and then connect them with your primary checking account. Then, create an ecosystem within your accounts to automatically send, receive and store payments.
With multiple bank accounts in place, you can manage your money with a high degree of control and freedom. Although it can get tricky in the beginning, using multiple accounts for budgeting is the way forward.