Using multiple bank accounts to budget is the best way to organize your money!

Everyone is looking for the magic ticket to budgeting success, and what I am going to share with you right now is IT! THIS is the thing that you need to do to set yourself up to succeed with budgeting. There is no game. It’s super straightforward, yet most of us have never considered it before because we (as a society) have always done our banking a certain way. Yet, this traditional way isn’t helping us; it’s actually making things more difficult.

What is the magic ticket? It’s using multiple bank accounts for budgeting

That’s it. Mystery solved. ?

how to use multiple bank accounts for budgeting success

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Why do we need to use multiple bank accounts to budget?

Having multiple bank accounts lets you divide your money into different, easily distinguishable buckets. You give each bank account a name, so at a quick glance, you know that you have $567 for home repairs and $723 in your vacation fund. There is no mixing those amounts up or getting confused about what each and every dollar is for.

Having multiple checking accounts sounds like it would complicate things, but it truly makes things so much easier! I promise!

With traditional banking, you have one checking account and one savings account, all your money is pooled together. You may have a written tally of what money is for what purpose, but with more money and over time it can get convoluted, confused, and then whoops, you just spent your home repair money on your weekend away at the beach, oh and your washing machine just broke. Dang it!

With your money divided up, it is extremely obvious what the dollars are for. No confusion and no mistakes. Easy peasy lemon squeezy as we like to say ?

Another reason is that specific banks may fail or some catastrophic event could lead to its closing. MarketWatch talked about recent incidences where this has happened and left people floundering.

What are the benefits of having multiple checking accounts?

Be able to easily distinguish what each dollar is for

We just went over this main point. Consider this method similar to using the cash envelope system, yet with accounts instead of envelopes. The same benefits apply.

You can see your progress toward your big savings goals

This is a big one! Being able to see your progress toward your goals is very motivating! For my family, we have a vacation account, which is a sinking fund we use to basically prefund our vacations. We do put everything on credit cards so that we earn rewards, but then when the bill is due next month, I pull the money from this account to pay for that vacation.

It creates boundaries as well as spending freedom

One thing that many people run into is feelings of guilt over spending money on unnecessary or luxury items, like a vacation. With separate bank accounts for budgeting, you can actually see that you are indeed taking care of all of your responsible adult obligations. There’s no need to feel guilty about spending money, as you know there is $15,000 in your emergency fund, and you have $745 in your home or car repair fund. You are covered! Go and spend your money!

On the flip side, having multiple accounts with strategic names (this is key!) means that you are internally tied to use that money for its intended purpose. Even though you may want a new TV, you can see that you only have $212 in your splurge fund. Yet, you can see that your “car emergency” fund has $1,230 in it. Maybe you could use that?

Ummmm…. hell no!

The trick to guarantee saving money success with multiple bank accounts

In going with the example mentioned above. That account says “car emergency,” and you know that this money is only for that one specific purpose, it’s not for a TV that’s for dang sure! Creating visual and psychological boundaries can be vital to helping you stay on track with your budgeting game!

The trick is to give your accounts a name that is emotionally motivating for you! (source) You treat things that you have named differently, on a deeper and more emotional level! You have “tied” it to your hopes, dreams, and goals, which can be hugely beneficial in how you contribute to it (source), and in how you don’t spend it!

If your account says “81-9564-5165” on your online dashboard, that could mean anything! And you probably aren’t motivated to contribute to it that much, or you even borrow from it. Oh, and yes, this is your retirement house fund. Oh, you forgot?

If you’re not motivated by the “retirement house” account name, maybe you’ll feel more drawn to “my 20-year sunny beach life”. You know that when you retire, you want to live on the beach, full of sun, sand, and palm trees! (insert your own whistful sigh here).

Now THAT’s an account that I want to contribute to!

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How to manage multiple bank accounts for budgeting

1. Find your bank

If you are happy with your current bank, then check online to see if they allow multiple accounts (almost all banks do!).

Then the most important thing is to see what their fee structure and minimum balance requirements are. If they charge per account, then it’s time to look for a new bank (or a local credit union). Don’t set up a great system with a spendy structure. That defeats the purpose and the benefits.

Google banks in your area for options and just give the branch a call. Usually, that can be faster than search through the gobs of info online. Or you can always go with an online bank (usually lower fees than brick & mortar banks).

2. Have a primary checking account

This will be where all your money flows in to as the first step.  

3. Write out your financial goals

In addition to your must-have accounts, you need to identify your goals and support those goals with the funds needed to make them a reality!

Must Have Accounts:

  • primary checking
  • emergency fund
  • house repair fund
  • car repair fund
  • retirement account

Optional Accounts:

  • vacation fund
  • personal splurge fund
  • kiddo fund
  • pet care fund
  • new car/house fund

If you don’t have a car (and don’t want one), then no need for that on the must-have list. If you rent your living space, then do still have a fund, but it may not need to be as big as someone who owns their own home.

There are your basic accounts, now let’s talk about your goals and putting those goals into your optional sinking fund accounts.

If you’re not familiar with sinking funds, it is a way to pre-fund your purchases, planning ahead on things that you know you want or will eventually need. Like new tires for your car, or your family’s annual vacation to Walt Disney World!

Here are my family’s sinking funds, and you can see that each is its own account!

multiple bank accounts
  • Vacation fund – it’s for vacation 🙂
  • Kiddo fund – all expenses relating to her, so medical stuff, birthday party presents that she goes to, her BTS clothes, her own birthday party events, and such.
  • Individual Savings – My husband and I each have our own savings accounts for personal wants. 5% of each of our paychecks goes into this account (in addition to regular spending). So if he wants a new TV for his man cave, then this is where that money comes from).
  • Individual Checking Accounts – we use my husband’s account as the primary checking account, yet I do have my own separate bank account. I’ve had this account since I was 15 so the longevity there is great, so I’ve just kept it. I could get rid of it and being at a different bank altogether, and I probably will. I just need 20 minutes and nothing else more pressing on my to-do list ?
  • Emergency Savings – now you don’t see account this account on this list I know. That’s because our Emergency Fund is an online savings account with Ally Bank. They give a much higher interest rate than traditional banks (around 20x higher!). So we are making about $50 a month just on interest rate returns ? (see the grey call-out box below for more details).

If you want to get started with a similar set up then be sure to check out this great resource that walks you through the whole process of deciding on and setting up your sinking funds!

multiple bank account infographic

For these accounts, we also follow a Pay Yourself First model. That means we put our savings goal before our regular bills. That way, we know we are always moving forward!

Side note on having a retirement account:
I don’t figure retirement planning too much into this formula, as our retirement accounts are funded with pre-tax money. So that is essentially the very first thing that happens after we get paid, and then then the remainder of our salary gets deposited into our main account. And then we put the multiple bank account system into effect.

Yet you could still plan for retirement savings as part of this system if you have a separate investment account, like an IRA, or a brokerage account.

Word of caution with multiple accounts

As with everything in life, you do need to be aware of a few pitfalls using this method.

Pitfall #1 – Having a separate account for EVERYTHING

You don’t need an account for groceries, and one for car payments and another for car repairs, and one for birthday spending and one for clothes spending, and on and on.

Use this system, but don’t abuse it by opening 20 accounts. That is unnecessary and a waste of time. Remember, you want this to be easier, not more complicated. If you need more accounts, then consider using cash envelopes instead. I use cash envelopes for smaller sinking funds, like Christmas spending, which I limit to $500 for everything. 

For the smaller things that you want to save for, you can always set up separate cash envelopes to make it so “the system” is still the same, but you’re just housing money at home in an envelope instead of a bank. Be sure to check out the complete list of sinking fund categories, and grab your cash envelope templates so you can make your own!

Pitfall #2 – Being Transfer Happy

The key to using these accounts is to keep it simple. Don’t go crazy transferring money back and forth multiple times. It would get confusing, be a waste of time, and your bank may charge you a monthly fee for too much activity.

Don’t use multiple savings accounts for budgeting purposes. A federal rule called Regulation D has put a six transaction limit on how many transactions per month you can do in & out of a savings account fee-free. It’s this way for all banks, for all savings accounts. So you’re better off sticking with mostly checking accounts.

However, if using multiple savings accounts get you a much better interest rate (i.e. high yield savings account), then by all means do it, but you need to be sure that you keep under the monthly 6 transactions limit, or you’ll start paying fees.

One time a month (3-5 days after we get paid), money gets transferred into savings and sinking fund accounts, at whatever predetermined monthly contribution amount we decided upon.

Then one time a month (when I am paying bills), I transfer money out of those accounts, and the money goes into our primary checking so I can then pay the bill in full.

For example, each month we transfer $100 into our car repair fund, which is automatically done. When I pay this month’s bill, I know that there is a $165 charge for a new car battery on my credit card bill. I’ll transfer that amount into our main checking account, and then pay the full cc bill from that.

Pitfall #3 – Having your emergency fund in a regular savings account

Looking at our account name screenshot, you’ll notice there’s no “emergency fund.” rest assured, we do have one. It’s just with a different bank. Ally Bank is a great option for online banking, they offer one of the best online savings accounts with interest rates 20x higher than that of the average bank’s savings account. That means you’ll earn a lot more interest!

For example – if you had a $30,000 emergency savings. In one year at a regular financial institution with a savings account of .08% APY you’d earn $24. While at Ally, with 2.20% you’d earn $660. Then that money starts earning interest too, so you’ll automatically pay yourself first agian, and again!

Ally bank is so consistent with their rates, service, and features that Money Magazine rated them the Best Online Bank of 2018 (source) Oh, and $0 service fees on both checking and savings accounts!

Pitfall #3 – Not having fee-free accounts

For having multiple accounts you absolutely need to make sure you use fee-free accounts. Many financial institutions have them, you just need to read the requirements…

  • having a direct deposit
  • maintaining a certain minimum balance
  • have a debit card
  • have multiple accounts with them (i.e. savings, and checking, sometimes they offer a money market account
  • opting in for electronic statements
  • having direct debit transactions (aka auto-pay bills)
  • sign up for their banking or budgeting app

At the end of the day

Using multiple bank accounts can be a massive game-changer for your budgeting system! I strongly urge you to give it a try and see how much faster you gain traction with your financial goals! Being able to see your progress is hugely motivating! Be sure you do your homework, though and find a bank that suits your needs (fee-free)!

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Action Item:
Call your bank today and ask about getting multiple checking accounts!