I went from one savings account to 8 — here's why you should, too
Flickr / babar141
When we talk about savings accounts, we generally think higher interest rates are good, emergency funds are great, and you only need one of these accounts and you’re done.
This isn’t exactly true. I used to be the same way though — I had one checking account, one savings account, and thought that’s all you ever needed. Well, I recently stumbled upon a method to savings that I find absolutely awesome and wanted to share it.
If you only have one or two accounts, think about how many different goals or upcoming bills you are currently saving for. My guess is you have more than one or two. Are you saving for an upcoming vacation, a yearly car insurance bill, money for a car you might need in the near future, an emergency fund, etc.?
Right now, I have eight different savings accounts. Why on earth would someone need so many different accounts just for saving money and complicating their life even more?
Having one large sum of money set up to save for multiple goals leaves too much room for question marks. Based on personal experience, it also slows your saving tremendously, which then makes accomplishing your goals take even longer.
Here are six reasons why having one savings account = BAD.
Flickr / frankieleon1. You will forget how much you had saved for each goal
Let’s say you decided to set up a Roth IRA account. Most Roth IRA’s require a minimum $3,000 investment just to open an account, so you start working on saving enough to open one up.
You just received a gift of $200 from a family member for the holidays, so you put it into your savings account with the idea that you’re saving for your Roth IRA. Then July rolls around and your insurance company sends you a bill. Without doing it on purpose, you might end up spending that $200 you had set aside on that bill. Congrats! You’ve just pushed your goals back another few months.
Flickr/Deb Stgo
2. You’ll forget what you were even saving for
As a human, it’s quite difficult to remember every single thing we’d like to. “When did I pay that bill last? When is the mortgage bill due? What the heck was I saving this for??” We are pretty terrible at the whole memorization thing.
Having nothing to remind you of what you’re saving towards leaves a much greater chance that you will forget at least one of those things.
Wikimedia Commons
3. You think you’re saving more than you really are
Let’s say you are putting $250 each month into your savings account. That sounds great, right? But, when you’re saving money towards 5 different things, you’re only truly saving $50 towards each goal.
If one of your goals really was to save $3,000 to open that Roth IRA, you wouldn’t have that goal completed until 60 paychecks had passed, or almost 2 1/2 years. Saving $20,000 for a down payment on a house? You wouldn’t be moving into that house for over 15 years.
When you break down your goals into separate accounts, it’s much easier to see your progress and how far along you really are.
TIP: A lot of your goals have set deadlines, like the date a bill is due, or a specific time frame something needs to be completed by. In addition, many banks allow you to add nicknames for your savings accounts, and these nicknames can usually be pretty lengthy. Do you see where I’m going with this? Why not include the due date for that goal/bill part of the nickname of each savings account?
Here is an example of one of my savings account nicknames: Car Insurance — $600 — 7-1.
It includes the name of the bill, the amount needed and the date it’s due. This makes it very hard to forget what you set out to do. (EDITOR’S NOTE: Remember our post on financial triggers?)
If you have the space, go ahead and add the amount you should be saving each month towards this goal, and you’ve just set yourself up very nicely towards reaching it.
See the rest of the story at Business Insider