The 7 Bank Accounts You Need to Organize Your Budget
Starting a Budget can be daunting.
It’s overwhelming to think about where every dollar needs to go and how to pay off debt and save money!
Plus, you are supposed to keep track of all the money in one or two bank accounts, yet somehow remember how much you have left to spend, and what is supposed to stay in savings? Yikes!
Luckily, there is a much easier way to keep track of your money. And that is to have multiple bank accounts.
Why on earth would you need to have multiple bank accounts unless you own a business???
Well, let’s look at an example:
Let’s say that you are getting ready to clean your living room.
Your kids have toys laying around, your husband has some work things sitting next to the door, the remnants of a craft project are over here, and some laundry that is needing to be folded is over there.
Would you just open up a closet, shove everything in it, and quickly close the door behind you?
What would happen if you did that not just once, but every time you cleaned?
I would lead to a huge mess in the closet!
What would you do when your child asks you where their toy is?
You’d have to dig through everything else in the closet to find it.
What about when you need to find something that you put in the closet a week ago? A month ago? A year ago??
It gets very difficult to know where things are, when they were put into the closet, and what they are supposed to be used for.
The same is true for money in a bank account.
Month after month we throw money into one (or two!) accounts, cross our fingers, and say a prayer that all of the money goes into the right place.
But if we divide up the money into multiple bank accounts, it becomes very easy to track how much money we have for each item in our budget, and how much money we have saved for the future.
Having multiple bank accounts is the easiest way to organize your money when you are starting a budget.
So in this post we will look at why you should do this, how to keep track of the accounts, and which bank accounts you should have.
And if you prefer to watch your content instead of read, check out this video:
Why Have Multiple Bank Accounts?
Let’s say that you want to put $100 away each month for a new car, $100 each month for a vacation, and $100 each month to save for your kid’s college.
If you are using one savings account, then all $300 dollars would go into the account every month.
In a year, you will have $3,600 in that account.
Now you thought your old car would last you a little longer, but you get rear-ended and now need to look for a car before you were planning on it (don’t ask me how I know…). You check your bank account and decided that you have enough to put $2,500 down on a new vehicle. You purchase a vehicle and take $2,500 out of the account.
But how much money did you really have saved for the vehicle? Only $1,200! So how much money do you have left for your vacation? How much money do you have saved for college?
Nobody knows! You accidentally borrowed from one or both of the other accounts!
And let’s be honest, you probably borrowed for the college savings because when it comes time for your vacation, you will still go with your family.
When you have multiple bank accounts you are able to track exactly how much money you have saved for each item.
Now, let’s see what happens if we have multiple bank accounts.
Using the example above, you would put $100 into your car savings account every month, $100 into your vacation savings account every month, and $100 into your kid’s college savings account every month.
At the end of the year, you have $1,200 in each account, and when you need that new car, you know exactly how much money you can afford to spend on the car.
You can still borrow from you vacation account if you want to, but you won’t be unintentionally draining your kid’s college fund.
How Do You Keep Track of So Many Accounts?
If all of your bank accounts are at the same bank, you can easily see how much money is in each account online.
If they are through different banks (or if they are through the same bank but you want to be able to track how much you are spending on each category within each account) you can use Mint.com to track everything.
Mint.com is a completely free budget tracking tool so you can see everything all in one place.
Ross loves using Mint.com to keep a close eye on our budget!
Will It Hurt Your Credit to Have Multiple Bank Accounts?
Nope! It hurts your credit when you don’t pay your bills or debt payments on time.
If you use this method correctly, it will actually help your credit because you will have a more organized approach to paying your bills.
7 Bank Accounts Every Family Should Have
Checking Accounts
A Checking Account is an account that you have a bank card attached to. This is separate from a Savings Account because you don’t want to be able to access your money in savings at the swipe of a card.
Here are some important checking accounts to have:
1) Staging Area Account
This is the account that all your money comes into… temporarily.
Your paychecks, tax returns, refunds, and any other money that you receive will go into this account. (Unless it’s money specifically for your birthday or Christmas, then it could go into a fun money account/or a personal account.)
But the money won’t stay in this account long because this is your staging area. This is where your money comes to wait for its assignment.
Link your auto-drafts for all of your recurring monthly bills to this account: your mortgage, your rent, your utilities, your insurance… anything that is an expense that you know will happen every month.
It’s also smart to auto-draft your savings first thing when you get your paycheck because you want to be sure that you pay yourselves first and the money doesn’t mysteriously “get lost” throughout the month.
2) Husband’s/Wife’s Checking Accounts
Almost everyone likes having money that they are personally responsible for and can use as they see fit. That’s where the Husband’s/Wife’s Checking Accounts come into play.
There are two ways that you can use these accounts:
- You can divide up the monthly responsibilities and put the money each person is responsible for into each account. For instance, if the wife is responsible for groceries, you would put the monthly grocery budget into her account and she would pay for the groceries with the corresponding debit card.
- The second way to use these accounts is give each person discretionary money . This is money that you can use how you see fit without needing to chat with your spouse about it first. This allows you to go out with the guys, get a pedicure, or save for an expensive coat that you have been wanting without any guilt!
We use these accounts the second way, but do whatever works best for you!
Emergency Accounts
Emergency Savings Accounts are for exactly what they sound like… emergencies!
You don’t want to have a debit card attached to these accounts, but you want to be able to access the money fairly easily.
Having your Savings Accounts at the same bank that you have your Checking Accounts works well for this. You can easily move the money from your Savings Accounts into your Checking Accounts if you need to, but it isn’t in your wallet at all times.
This keeps you from deciding that you really need that new grill right now and “you’ll just pay back your savings later.”
Pro Tip: Don’t borrow from these accounts! Only use them for true emergencies. Trust me, money doesn’t get paid back as easily as it gets drained!
3) Emergency Savings Account
Emergencies are things like a job loss or a house loss. A medical emergency could also fall into this category, but I recommend having a separate Health Savings Account for this (see #2 below.)
If you don’t yet have an Emergency Savings Account, open a savings account, and put every bit of cash that you can spare into the Emergency Savings Account until you have at least $1,000.
If you want to stop once you reach $1,000 and that feels like good padding between you and any emergency, then you can move onto the next account.
But I recommend not moving past this step or creating more accounts until you have at least 3 months of your expenses saved into this account.
If you are using the 70/20/10 Rule for Budgeting, this is where you want 20% of your net income to go until you have your base in this account.
Decide how many months of living expenses you would like to have stashed away for a rainy day, and don’t move on to creating the next account until you have it saved!
4) Medical Savings Account
I recommend having a separate savings account for your family’s healthcare expenses.
There are two ways to do this:
Medical Savings Account Option 1
Insurance companies often have a Health Savings Account (HSA) option if you get your insurance through your employer.
These accounts typically have tax benefits (such as being able to put the money into the account tax-free) and can generally be used for any medical needs from a co-pay at a doctor’s appointment, to a dental check-up, to major surgery, to having a baby.
The only downside to this type of Healthy Insurance is that you have a very high deductible.
But if you are healthy, and single or married without kids, this a fantastic option.
Before Ross and I got married, he had an account and contributed to it every month.
(Often if you have one of these accounts through work, your employer will also match your contribution!)
Once we were married and on the same insurance, I also got an HSA plan through our employer and I contributed the maximum amount that I could every paycheck until we reached our yearly contribution limit.
One of the best things about having an HSA is that if you switch employers, you take the account and the money with you so you don’t lose anything.
With the money we had put into our accounts, we were able to pay for my prenatal care and birth expenses for both of our girls without having to pay our deductible out of pocket. The money was already saved!
I highly recommend having this type of insurance if you are planning to have children down the road and are a healthy person.
Medical Savings Account Option 2
Now that we have children, we wouldn’t want to have a high-deductible insurance plan. Kids get sick a lot more often than adults do and tend to be accident-prone.
After our younger daughter was born, we used the last of our HSA money that we had from our previous employer, so we decided to make our own account.
We opened a regular savings account at our bank and we treat it like an HSA (unfortunately it isn’t tax-free money, but it still does the trick).
We put money into this account every month until we reach our yearly deductible. Then, if we have a medical emergency, we already have the money saved and we don’t have to dip into our Emergency Savings Account.
If you are using the 70/20/10 Rule for Budgeting, once you have the living expenses buffer in your Emergency Savings Account, you can put 20% of your income into this account.
Sinking Funds
A sinking fund is an account that you put money into when you are saving for something specific, often to replace a depreciating asset like a vehicle.
You aren’t expecting to grow your wealth with these accounts, you are setting the money aside for a specific use.
5) Large Item Sinking Funds
Car Savings Account
This is for… wait for it…. anything to do with your car!
We get a discount on our car insurance by paying for it bi-annually. It’s great to get a discount, but that means that twice a year we have a large payment. So we divided out the total annual amount into 12 monthly payments and put the payment each month into our Car Savings Account.
Pro Tip: Check with your insurance company to see if you can get any discounts for paying in lump sums!
When the payment is due, we have the money sitting in this account ready to go. This way it doesn’t mess up our monthly budget twice a year.
We also put money into our car savings account for car emergencies. You never know when cars will need repairs or to be replaced. It is always better to have the money ready to use for your car than to have to dip into your Emergency Savings Account.
You can also put some extra money into this account if you want to upgrade your vehicle in the future. Then when it is time for the purchase, you will have the downpayment (or hopefully the full payment!) ready to go.
House Savings Account
If you plan on purchasing a house, it is never too early to start a House Savings Account.
It’s ideal to be able to put 20% down on a house when you decide to purchase, and this is a great place to build up and store the money!
Having a separate account for the house ensures that you won’t accidentally use this money for something else, and it allows you to see how close you are to your goal at a glance.
6) Fun Sinking Fund Accounts
These accounts make sure that you can have fun with your money without digging into the important savings accounts!
Trip Savings Account
We love taking trips! But vacations can be expensive if you aren’t budgeting for them in advance.
Even though you aren’t generally at home when you take a vacation, you will still need to pay your mortgage/rent, utilities, insurance, and all of your other monthly bills. Plus food on vacation generally costs more than your monthly food budget.
The best way to save for a trip is with a sinking fund. Put some money every month into a separate account specifically for a trip or vacation.
Then when you go on a trip, you have the money set aside and ready to go!
If your family isn’t into vacations, you could have a “fun things to buy” account and use it for a trampoline, a swing set, or a pool for the backyard.
Gifts Accounts
Christmas and Birthdays are so much fun, but they can also be expensive!
If you enjoy giving gifts and doing activities around each holiday, then start preparing for the festivities all year round.
To set up a Gifts Sinking Fund, figure out how much money you want to spend on Christmas and/or Birthday Gifts through the year, and divide the total amount by 12. Then each month put the monthly amount into the fund.
Savings Accounts For The Future
Sometimes it can be a challenge to save money for something that is so far in the future like retirement or your kids going to college.
But saving for the future is so important. Not only because you want to have some money set aside for when you get there, but also because the sooner you start saving, the more money you will have when you arrive!
Due to the time value of money, the sooner you start saving for the future, the better.
7) Retirement Savings
Everyone should have a retirement savings account.
Set aside some money every month for your retirement in a ROTH IRA, a 401K, or other account that is made for retirement savings (they have tax benefits!).
If you are a young single person, or a young couple without kids, I highly recommend contributing the maximum yearly amount toward your retirement.
The more money you put into these accounts in the beginning, the more money you will have down the road!
College Savings Accounts (Optional)
If you don’t want help your children pay for college, that’s completely ok!
There are pros and cons to paying entirely for your children’s college education and you have to choose what is best for your family.
BUT, if you want to help your children with paying for college even a little bit, you should start saving for it now… actually do it yesterday!
If you don’t want to save for their college, you can show them how they can save their own money for college by using my Simple Budgeting Method for Kids.
You can set up college savings accounts for your children either at a local bank in a regular savings account, or you can set up education-specific funds.
The only downside to an education-specific fund is that it has to be used for continuing education after high school.
So, if your children decide that they do not want to go to college or a trade school, you can use the money for some other form of education, but nothing else.
We decided to get education-specific funds for our girls because we want to encourage them to continue their education. And if they decide that they don’t want to, we have nieces and nephews that we can help out.
Even putting $25 a month into an account for college will help soften the financial blow to your children if they decide to go.
Pro Tip: If you have more than one child, open an account for each child. You don’t want to drain all of the college savings money on child number one and have nothing left for child number 3. Having an account for each child ensures that each kid gets the same amount of help from mom and dad and no one is crying “unfair!”
Wedding Funds (Optional)
Just like college, weddings may seem far off, but they can be really expensive… and sneak up on you if you aren’t expecting it!
We also opened a wedding account for each of our girls not long after they were born.
We don’t contribute a lot to these accounts because we don’t plan on having more than three to five thousand dollars saved up by the time they get married. We had a very small budget for our wedding and it was still great! But we would like to be able to help them out should they choose to get married.
If they want more money than we have saved, they can decide if they want to make up the difference.
Even if you have boys, it can be nice to help out with the wedding or give the money in the account to the couple as a wedding gift.
We figure that even if they don’t get married, we can let them use the money towards a down payment on a house or some other investment.
Bank Account for Each Child (Optional)
When your kids are little, I prefer to teach them budgeting with this simple cash method for kids, but as they get older, and their savings jar gets full, open a bank account for each child’s personal savings.
You may want to have an account for their spending money as well. But if you open the account when a child is too young, they will have a hard time understanding that their money is still in the bank.
I plan on opening bank accounts for our girls when they are about 7 or 8 years old.
Spare Change Account (Optional)
If you want some incentives for being more frugal with your money and coming in under budget each month, a Spare Change Account is a great option.
A Spare Change Account doesn’t have any money budgeted toward it. You only deposit money into this account when you are under budget in another category and have money left over.
So if you have $100 per week budgeted for groceries, and you only spend $80 at the store, you would put $20 into your Spare Change Account.
The only catch with this account is that you have to use it for something fun! If you are planning to use the money for something boring, you will never try to be under budget.
Be sure to think about the awesome way your going to spend this money after a couple of months before you get started!
Get Creative!
These seven bank accounts are just a starting point. Open as many as makes sense for your family and financial situation!
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How to Start Budgeting: A Beginner’s Guide to Creating a Budget, Cutting Costs, and Saving Money.
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10 Frugal Living Tricks for Saving Money and 37 Ways to Save Money on Groceries.
The {Simplest} Budgeting Method for Kids.
