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Why you should never limit yourself to just one savings account

Posted by Garick Giroir on March 11, 2020

Blog_How multiple savings accounts can help you save better

If you’re like most people, you’ve been working toward a financial goal. Maybe it’s a new car, maybe it's an Alaskan cruise, maybe it's a she-shed. Unfortunately, as unexpected expenses pop up, it's so easy to reach into your savings pot to cover the costs.

If you're tired of stealing from future you, try putting your cash into targeted savings accounts for specific savings goals. 

This isn’t a new concept. Some call it bucket budgeting. Others call it the envelope system.

Of course, we choose to not take those words literally because, frankly, the act of putting more than $100 in an envelope, or Heaven forbid a literal bucket, sounds risky.

If you want a safe way to reach your goals faster, opening multiple savings accounts through your credit union or bank can be a game changer. By setting up a savings account for each of your short-term savings goals, you can see with your own eyes how much money you’ve put toward that goal. And thanks to compounding interest, putting money toward your goals means reaching them faster.

Opening multiple accounts is free and painless.

Having multiple savings accounts is great — because unlike credit cards, opening multiple accounts doesn't affect your credit score. For instance, you can open up to five secondary savings accounts at Louisiana FCU for free. Throw those in with your primary savings account and other specialty accounts, like Christmas Club, Money Market or Share Certificates (we'll talk more about these later), and suddenly you have all the savings buckets you need.

Multiple accounts help you set (and stick to) distinct financial goals.

The biggest reason to open more than one account is to track exactly how much you have saved toward each individual savings goal. If within the next 12 months you want to buy an RV, reshingle the roof, and bring your family to the LSU season opener, you can open an account for each of those goals and see at a glance how close you are to reaching them. 

Automated transfers help you pay yourself first.

Setting up automatic savings transfers each month helps get rid of the hassle and excuses you'll make to avoid saving. Talk about an instant momentum builder. 

You'll trick yourself into saving more.

It's scientifically proven that the human brain strongly dislikes saving money. Having an account for each of your goals can be an effective behavioral trick to keep your pesky mind in line. For instance, if you take money out of a catch-all savings account, it won't feel like much. But if you see that it's labeled “vacation,” your mind will recognize that it's hurting your chances of taking a future trip and will force you to think about what your trading away.

If the temptation to spend money from your savings account is too strong, protect yourself from yourself by putting the designated money further out of reach. No, we’re not talking about stashing your cash in the attic (though you’re welcome to try). Instead, try opening an account that’s more difficult to access.

  • A money market account limits how many monthly withdrawals you can make and gives you a slightly better rate than a traditional savings account.
  • A share certificate is great for goals that will take more than six months to reach. With this account you'll have restricted access to your funds, but see better returns in the long run: A reward for your patience. 

Related article: The practical way to reach your financial goals: Share Certificates

 

How many savings accounts should I open?

From our experience, having anywhere from four-to-seven designated accounts is the sweet spot. Different people have different obligations and dreams, but if you're just starting out, we recommend the following account lineup.

 

1. Fun money account

Account type: Primary savings

Strategy: Toss in your extra cash and spend it when you feel like it

­­Saving money doesn’t always have to be about making responsible adult decisions. Saving up to buy something you want can feel like a real win. You have our permission: Create an account for fun stuff. Whenever you have cash leftover at the end of the month, toss it into your fun money account. This way, you can buy the things you want without feeling any remorse.

 

2. Emergency fund

Account type: Secondary savings

Strategy: Deposit money and forget about it

You’ve heard the old adage “what can go wrong, will go wrong.” When things go south, it’s important to have money set aside to act as a safety net. Open a savings account that’s strictly used for unpredictable emergencies. Feed the account until the balance can cover at least three months’ worth of living expenses. If you’re lucky, you’ll never have to touch it.

 

3. Travel and vacation savings

Account type: Secondary savings

Strategy: Drain and refill

Traveling is expensive. Whether you’re planning a relaxing vacation, or a flight to Cleveland to attend your cousin’s wedding, your goal should be to set a budget and feed this account until you have enough. Even after you’ve taken your trip, continue to deposit money into this account for future adventures.

Related article: 5 affordable vacation spots within driving distance of southeast Louisiana

 

4. Home and auto expenses

Account type: Secondary savings

Strategy: Build and use when needed

Somewhere down the road (perhaps literally), unexpected auto and home repairs will pop up. You don’t know how much it’ll cost or when it’ll happen, but you know these types of expenses are inevitable. This account is a lifesaver when your fridge suddenly stops running or your engine fails. We recommend having at least $2,000 in this account at all times so you can attack the problem as soon as it happens.

 

5. The BIG goal

Account type: Secondary savings or share certificate

Strategy: Stack that money, rinse, and repeat

Whether your goal is to buy a house, attend college, purchase Saints season tickets, or finally get that boat you've wanted, designating an account to your big-ticket goal will help you take concrete steps toward reaching your dream while leaving room for other costs. Set an end date for the goal and calculate how much you can put away monthly to reach it. Fight the urge to withdraw cash from this account until you've reached your target amount.

 

6. Holiday savings

Account type: Christmas Club

Strategy: Drain and refill

Every year Christmas approaches very quickly. Open a savings account just for holiday spending. We recommend using a Christmas Club account for this goal because it locks down the money until November 1. Decide on an amount you can afford to put aside from each check. It doesn’t have to be a lot. Even if you save $10 a week, that’s $520 to spend during the holidays. You may want to set up automatic transfers to force responsibility, because admittedly, saving for the holidays in April feels weird. 

Check out our Christmas Club rates.

 

By building a comfortable savings nest through multiple accounts, you'll be better prepared for life’s curve balls without putting your dreams on hold. 

Here's how you can track your financial goals on our online portal:

Tutorial_Online Budgeting Tool_FINAL

 

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