4 Bank Accounts Every Family Should Have

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Day 3 is here and it is all about bank accounts. That’s right, I said bank accounts. When it comes to budgeting I have found that bank accounts, and having the right amount, are key.

The right amount? Yes, you read that correctly.

We all know the gold standard of bank accounts - one checking and one savings. For some people that works just fine, but for those people like myself who need a little more organization, multiple bank accounts are key.

I heard this analogy and think it sums it up pretty well. Having one checking account and one savings account is like having all of your important papers filed away in two drawers. Yes, all of the papers are in there, but there is no organization! When you need to know exactly what you have it can be time consuming to figure out. Having multiple checking/savings accounts is like organizing those two drawers with files...home information, warranties, marriage/birth certificates, etc.

The key to budgeting is organization. The more organized you are the better you will be at budgeting.

The key to budgeting is organization.

Statistically, MOST families have trouble making and keeping a budget. Eek! This tells us just one thing: that the system that has been around since the beginning of time (one checking and one savings account) might not work that well!

So I am going to propose something different: 4 bank accounts your family should consider opening that will help you organize and most importantly save your money!

First -

Let’s tackle a myth about multiple bank accounts.

Myth - Having lots of accounts hurts my credit, costs me extra, and makes my life more complicated.

Answer - The simple answer is no to all of the above. Or, it shouldn't, anyway. Your credit won’t be affected unless you get into debt or don't pay your bills on time. If it costs you money to open an account, CHANGE BANKS. In fact, many banks will pay you to open an account with them! Don't be afraid to change banks or bank with multiple companies. And believe it or not, as confusing as it looks on paper, if you commit to the system, get organized, and take the time to do it right (including setting up recurring money transfers from account to account) it will actually simplify your life!

Second -

There is one really important question that needs to be answered...

How do you track four different accounts?

The easiest way is to describe what my family does. All of our accounts are with the same bank (most of our accounts are with Wells Fargo) so our online bank dashboard will have all our accounts handy in one place. I then nickname each account so I know exactly what the money in that account is for.

If your accounts are all open with different banks, you can use Mint.com (we talked about it yesterday) which is a free service that pulls information from all your banks and presents them on a single dashboard. You can easily see all of your account balances as well as transaction history within each account. They have a great mobile app (for iPhone and Android) too! So what does this mean? If you're willing to use a computer and phone to do your banking rather than a pen-and-paper, this method will save you time AND money. And after all that is the point of budgeting. It is why we started the crazy journey to begin with!

Yes, there are other methods and opinions out there (one blogger even recommends having 7 bank accounts) however after reading over professional budgeters opinions and opinions of the everyday human I have decided that 4 bank accounts is what every family should consider opening.

Now, let’s get to the good stuff. Here is the break down of the four accounts every family should consider having.

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4 BANK ACCOUNTS EVERY FAMILY SHOULD CONSIDER OPENING

1. EMERGENCY SAVINGS ACCOUNT:

10% of every paycheck should go into this account. The money in this account is for exactly what it sounds like - emergencies. This money is to be used only when there is no option left. Let’s qualify emergencies a bit. Emergencies are NOT credit card payments but rather I am going to lose my house if I don’t make a payment.

TIP: Make this account hard to access. Open a free online savings account where you can deposit money and it takes 3+ days to retrieve if needed. When you look at your overall finances, try not to consider this account. Additionally, set up an automatic transfer of funds from your direct deposit every time you receive a paycheck - then you don’t even have to think about it!

2. FAMILY SAVINGS:

10% of every paycheck should go into this account. This is the savings account you should think of when you think of the words ‘savings account’. The money in this account shouldn’t be spent without thought, however. This money should be for things like home repairs, unexpected auto repair expenses. By putting 10% into this account every paycheck along with any extra money you have left over from your budgets, before you know it you will have a nice little nest egg! Your goal with this account is to have AT LEAST 3 months living expenses (groceries and other included). Try not to touch this money before you reach that number!

TIP: Set up an automatic transfer of funds from your direct deposit every time you receive a paycheck - then you don’t even have to think about the 10%. It will automatically be deposited.

3. MORTGAGE/RENT/UTILITIES/DEBT:

Think about whether you get paid every week, two weeks or month. Depending on when you receive a paycheck os how this account should work. Take a look at your rent/mortgage and utility cost as well as any debts you owe. Now divide that by the number of paychecks you receive. Got that number? This is the amount that should be transferred into this account every time you receive a paycheck.

Let’s look at an example. For easy math’s sake let’s say rent and utilities are $1000/month and I get paid twice a month. Each paycheck I am going to transfer $500 into this account. If I get paid weekly, then each check I am going to transfer $250. With this method there should always be enough money in this account to cover your expenses.

TIP: Set up an automatic transfer of funds from your direct deposit every time you receive a paycheck - then you don’t even have to think about money at all. It will automatically be deposited.

4. GROCERY/OTHER:

This account is specifically for groceries/consumable items for your house and other monthly misc transactions. You should have a budget for these items. This isn’t just a catch all. Yesterday, I talked about developing your grocery and other budgets by looking at your previous months transactions and trying to cut that by 10-20%. If you stick to the 10-20% cut back rule and have just enough money in this account to pay for those budgets, you will know when you go over and work hard not to!

TIP: This is the account to which my direct deposits go. From here I transfer all my money to the respective locations.

There is an optional 5th account to have. Yes I did save FIFTH account. This account should only be opened/used if you are out of debt. If you are working to get out of debt save this account for a later time.

This 5th account is FUN MONEY account.

Any extra money you have left over at the end of every month (after paying all of your bills and feeding yourself and your family) should be deposited into this account. This account can be for vacations, donations, special purchases that you want to buy, gifts, etc. REMEMBER: If you are working to get out of debt, any extra money you have should be going towards getting out out of debt! You can do it!

TIP: I recommend opening a savings account for your FUN MONEY account. With savings accounts there are no penalties for depositing money but there can be restrictions on how many times you can withdraw. The restrictions will help you to keep the money in there and save up for something you really want!

Phew that was a lot of information! Did you get it all? I wouldn’t blame you if you needed to go back and read it.

I have created this quick (not very pretty) Google Sheet for you to use to make your calculations easy.

Have questions? Have budgeting tips that work for you? Let me know in the comments below!