Diligent planning, budgeting, investing, saving and setting up contingency plans will help you stay out of debt and will help you build wealth, so with that in mind, why set up several savings accounts?
In this article, you will find reasons to set up multiple accounts, reasons why you shouldn’t, and a whole slew of ideas around what you can do with your accounts and how you may make multiple saving accounts work for you. Think of this article as a pulp fiction of thoughts and ideas for and against multiple savings accounts.
Saving Is Too Hard And I Can’t Do It
Nobody is saying you have to suffer in order to save. You can pull a small percentage from your wages every month, you can only save what you cut from your budget, you may decide to save the money you make from the sale of goods. There are other saving methods listed in this article, suffice it to say that saving is not difficult. It isn’t even a hardship.
However, if you are gung-ho on saving by suffering because you are “sure” you have no disposable income, then read our article on how to save even if you have no disposable income. It is called, “Wealth building when you are living hand to mouth.”
Here is an article that will help you change your attitude about how you spend and save money so that you will have more disposable income, in our article about, “How to stop spending your money.”
Finally, here is an article that gives you, “111 ways to save money.” All three of these articles will have a powerful effect on your finances and your ability to save if you take their advice on board.
Below are twelve reasons why you may want multiple savings accounts. If you open an account based on each idea listed below, then you will have twelve savings accounts–which is more than enough.
Saving Account 1: An Account For Your Change
Set Up An Acorn System Of Your Own
Let’s assume you have numerous savings accounts, you could use one of them to put your change in. The Acorn saving system (read our Acorn review) works by investing the change you have left over from purchase transactions. Instead of signing up to Acorn, you can do something similar yourself in a manual fashion.
For example, every time you log onto your online bank account, you could invest your change into your savings account. If you were to log on and you saw that you had $332.45 in your account, you could skim off $2.45 and put it in your savings account.
You may only check your account once per week, but that means you are adding four times per month with amounts between a few cents and ten dollars. Even at an average of $4 per week, you are going to have over $200 in your savings account. What is brilliant about this is that you do not notice the change going missing. It is not a large amount, and it gives you something to do whenever you check your balance.
Saving Account 2: An Account For Budget Cuts
Can You Cut Money Out Of Your Budget?
Your budget has fixed expenses such as your rent and bills, and you have variable expenses such as food, entertainment and so forth. Manage your budget and siphon your savings into a savings account. Do it aggressively and purposefully at least once per month. Put the money you siphon into its own savings account. If you have a rough month, then do not pull meaningful money from your budget that month. If you have a good month, then try aggressively removing the money and adding it to your savings account.
Saving Account 3: An Account That Is Out Of Sight And Out Of Mind
Don’t Check The Balance Of One Of Your Savings Accounts
Some people are better able to save if their money is out of their hands, or at least out of their peripheral vision. You may benefit from having an extra savings account in which you place money from ad-hoc things, such as scratch card wins, birthday money, or money from sales of your household items. To help stop you spending it, you could go out of your way to never check the balance. This obviously raises a security concern because how do you know if you are being ripped off, but maybe you can get your bank to agree not to allow anybody to withdraw from it for five years.
Saving Account 4: An Account For A Very Specific Purchase
An Account For One Big Purchase Is Always A Good Idea
One fantastic argument for having numerous savings accounts is to have them set up for specific goals, and the goal of a specific purchase is both juicy and tantalizing. When you reach your goal and make your purchase, why not start saving for another big purchase? Where is the harm in a little extra saving, and where is the harm in another savings account just for specific purchases?
Saving Account 5: An Account For A Long Term Goal
What About Your Kid’s College Fund?
You probably shouldn’t save up for your retirement in a savings account because you could probably get a better return if you learned how to invest and put your money in blue chip companies mixed with government bonds. However, there are long-term goals that are going to creep up on you like ants at a picnic, and your kid’s college fund is one of them.
Saving Account 6: A Contingency Fund For Self Insuring
Save Money On Insurance By Paying Yourself
Self-insuring is a risk, but it is a calculated risk. Here is an example of how it works in very simple terms (the figures are just examples to explain the point).
You decide to buy a new TV for $400. You consult an insurance company that says they will insure it for $400 if you pay $2.31 per week. If you were to self-insure, then you would put that $2.31 into your savings account and never touch it until you need a replacement TV. Now, let’s do the math.
Insured and it breaks after 1 year, you lost $120.12, and you get back $400, and you gain $279.88.
Insured and it breaks after 3 years, you lost $360.36, and you get back $400, and you gain $39.64.
Insured and it breaks after 5 years, you lost $600.60 and you get back $400, and you lose $260.
Insured and it breaks after 10 years, you lost $1201.20 and you get back $400, and you lose $801.20.
After three years of being insured, you are making a loss. However, if you were to put your $2.31 into a savings account and not spend it, then after 3 years you would make a profit if the TV needed replacing. If it needs replacing within the first three years, then you are out of pocket, which is the risk you take when you self-insure.
Saving Account 7: An Account That Has A Direct Debit Going Into It
You Already Have Fixed Bills, So Make Your Savings Another Bill
One of the most painful, but efficient, ways of saving is to have a certain amount debited out of your account every month. You have other bills that are debited out of your account every month, so what is one more bill. If you treat it like a bill and you leave your savings alone, then it will slowly build up.
Saving Account 8: Money That Comes Straight From Your Wages
Set Up A Direct Debit On Your Account
You may not be able to set up a system where your bank draws money from your wages, but you can get around it yourself. On the day you are paid, set up a direct debit (standing order, repeating order, automatic funds transfer) to take a certain amount of money out on that day.
Since you are being paid on that very same day, you do not feel the impact of losing the money. It feels more likely you were paid less on your wages, rather than feeling like an extra bill has been paid on that day. It is similar to a portion of your wages being taken out to pay for your pension.
Saving Account 9: An Account That Punishes You
Are You Able To Save Without Spending?
If you frequently tap into your savings for non-emergency reasons, then you are a terrible saver and you need to tailor your savings accounts to help you help yourself.
You need to set up saving accounts that are difficult to access. You need to put your money out of your reach. Try accounts that severely limit how often you may withdraw, or try accounts that make you wait seven days to thirty days for your money. Consider savings accounts that charge steep fees for withdrawing your money early.
Saving Account 10: Different Savings Account Benefits
Higher Interest, Better Security, Good Long-Term Saving Plans
Another reason why you may need numerous saving accounts is because different accounts offer different things. Some may offer fantastic interest rates if you promise to keep your money in longer. Other banks may offer a very flexible ways to save that suit your lifestyle. Each savings account may offer different perks and benefits for use, and the banks that offer the savings accounts may have their own perks that you may take advantage of.
Saving Account 11: You May Have Lots Of Money
Spreading Your Money Across Accounts To Protect It
Your savings account may have FDIC insurance, and that insurance covers you up to $250,000, but you may have more than that. If that is the case, you may spread your money around different savings accounts to receive FDIC protection on all your money.
Spreading your money around into different savings accounts may also protect it from thieves. If somebody is trying to steal your identity and you have all your money in one bank, then the thief only has to gain access to one account to get to all your money. If your money is spread around in different accounts with different banks, then the thief has to gain access to numerous accounts in order to get his or her hands on your money.
Saving Account 12: Are You Worried Your Bank May Fail?
The Tax Payer May Say No One Day
Banks don’t fail because the US government will always wipe bankers’ backsides so that they get their nice fat bonus checks paid for with US text dollars. However, there may come a day when a strong republican takes over and decides that the banks have had all the free cash they are getting.
The bank may have to go under for its misconduct, and it may take your money with it. Your money will have FDIC insurance, which will reimburse you for your money going missing, but it takes time, so you should spread your money around into different banks, and you should keep your balance below $250,000 so that your money is reimbursed.
Nobody is saying you should open up twelve accounts, but the fact is that you could, and the fact is that the 12 reasons above are 12 good reasons to have multiple savings accounts.
Obviously, there are plenty of reasons why you shouldn’t have numerous accounts, with the strongest being that numerous savings accounts suggests you are not investing your money correctly (unless you have a lot of money kicking around). After all, the money you have in six or seven of your accounts could have been invested in something else for a better return.
With that in mind, any form of saving with numerous accounts is far better very little saving with just one account. Do whatever it takes to encourage yourself to save more, even if it means opening numerous savings accounts. If you start saving, you take your first steps away from poverty and towards financial independence.