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Using Multiple Bank Accounts to Control Your Spending

I am always interested in how others manage their personal cash flow, so I’ve decided to share how I do it.


I am always interested in how others manage their personal cash flow, so I’ve decided to share how I do it. Ultimately, which accounts your money flows through matters less than where it flows to, but recently I’ve found utilizing multiple bank accounts actually makes keeping to a budget easier.

I have four bank accounts. Two checking accounts, two savings accounts, plus one credit card. I’ve come a long way from the days I had four credit cards and one bank account (with nothing in it!)

But it’s not that I need four accounts to hold all my cash (though I do wish that were the case). Instead, I find compartmentalizing my money simplifies keeping track of it and, consequently, staying on budget.

See what my bank accounts look like below.

Every two weeks my paychecks are directly deposited into my free checking account at a local credit union. On approximately the same day preset amounts are electronically transferred from my free local checking account to my two savings accounts and my online, high yield checking account.

I then use the debit card linked to my online checking account for all my routine purchases and discretionary spending. This includes gas, groceries, eating out, etc. The beautiful thing is: I only put a set amount in that account every two weeks, so I train myself not to spend more than that.

Throughout the month, I use the remaining funds in my local checking account to pay all of my bills. Most months this is a very predictable amount, though obviously some monthly bills, especially utilities, can fluctuate. I usually budget for a 10% cushion. Above that I could tap into my short term savings.

My two savings accounts are earmarked as short term and long term. My short term account, also at my local credit union, I’ll use if I want to save for a large purchase or a vacation. My online savings account is for either buying a home or graduate school, and also serves as an emergency fund.

Finally, the credit card.

I only recently set up this banking system. Until then, I had been using my credit card for my monthly spending and paying the balance each month in order to get rewards points. (Even I was amazed how long I could go without needing cash). But even with my attention to my finances I found that I was spending more than I wanted each month. Not enough to send me spiraling into more debt, but enough to make me take notice. So my credit card was demoted to a new role in my wallet.

Reimbursable expenses. That’s right. The only thing I pay for with my credit card are travel expenses for work. I’m still earning points without risking racking up a balance of personal expenses. I will probably still use my credit card for personal travel, though this money will be “secured” by funds in my short term savings or spending accounts.

Do you have a personal banking system? I’d love to hear what it is and how it works!

MY MONEY MAP

A map of the multiple bank accounts I use to control my spending.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. THANK YOU for sharing! I do something similar and people think I’m crazy. It sounds complicated to have so many bank accounts, and I will admit that designing my system was hard, but gosh it’s easy to use! I don’t keep track of anything b/c everything’s so segregated. I love my system. We gradually upped the # of accounts. In addition to the ones you have, we now have a debit card for the car expenses and one for non monthly bills like father’s day gifts. When our jobs offer an HSA, then we’ll see if we can get a medical card. Most due dates are at the end of the month (the ones that won’t change the due date are paid up an extra month in advance) so all bills get paid on the 1st. Everything is automatically transferred like yours. Thanks for sharing! I’m so glad to find someone who thinks like me. It really is easier to do your bills this way if you can get your head wrapped around it.

  2. Thanks, Laura.

    You reminded me that I wanted to explain better why having all these accounts seems complicated but actually isn’t (even when you add a couple more as you do).

    The first thing that comes to mind with multiple accounts is more account numbers and pins and websites to remember. I don’t know about everybody else, but I have a million pins and passwords to keep track of all ready, many for things much less important than banking.

    In exchange for having a few more account numbers, I spend less time thinking about money — I balance my bill paying account when I pay my bills, and my spending account balance once a week or so.

    I never have to worry whether my grocery purchase is going to make my rent check bounce.

  3. My setup is very similar to yours: money goes into checking account A, and then gets auto-transferred to checking account B, and savings. All three accounts are linked and are with the same bank. checking account B is where all my bills are paid; checking account A is my day-to-day spending; savings hasn’t been really structured yet. (retirement savings is already handled pre-tax.)

    I’ve just paid off my credit card so am trying to work out how much is reasonable to leave in my spending account. Lately I think I’ve been too strict, as I wind up dipping into savings every pay period. How did you decide how much to allow yourself to spend?

  4. karla (threadbndr) says:

    I have a similar set up

    Paycheck is split deposited – a set amount (about 15% of net) goes into the accrual account for those once or twice a year expenses (property tax, insurance that isn’t billed monthly) and the budget busters (like vet bills). Overtime and vacation accrual goes in the ‘spending money account’ at the bank in my building (where I also have my safe deposit box. The vacation money is transfered out to a saving account monthly.

    The majority of my checking account is in a checking account at my credit union. That account is linked to the accrual account and to the online high yield accounts. There are three ING accounts – e fund, saving for future car/major car repairs, save for house (renovation projects/new appliances, etc). Credit card is only used for travel (presaved in one of the accrual accounts) and online purchases (don’t use debit cards – they aren’t as protected).

    Yes, it’s somewhat cumbersome to have so many accounts, but I find that when I used to just pool the funds in one checking and one savings account, I would ‘rob Peter to pay Paul’ and end up overspending and undersaving.

  5. I do a similar thing, only I use Quicken to track my finances and have “dummy” accts where I “transfer” money from my checking to the various savings accts. I used to actually transfer the money to the savings accts–our CU allows us 5 per checking acct and we have two of those, but I’ve found it’s just as easy to do it this way.

  6. My setup is a little similar, but I decided to chime in because I use options other than just checking and savings.

    My paycheck is deposited biweekly into a free checking account at a local bank. The interest rate there is laughable, so my ING Direct account is set up to automatically transfer everything I don’t need for rent or utilities into one of my two ING accounts. Since ING sets a limit of 5 withdrawals per account per month, I use one for regular monthly transactions like my student loan payment and my credit cards (both set up for automatic payments) and the other is for small, regular contributions to stock and bond mutual funds, as well as my Roth IRA, at Vanguard.

    I charge every daily expense I can to my credit card. Even $4 for a sandwich goes on the credit card. I rack up a decent number of frequent flyer miles this way, and I get free money for a month at a time since I set up the credit card to automatically pay itself in full every month from the ING account. This avoids all interest charges the credit card is free and I’m earning interest on that money for a month or so until each credit card bill comes due.

  7. Earlier this month I opened an ING savings account and set an automatic amount to transfer to it every pay period. I like the fact you can’t touch a deposit for five days and it takes up to three to transfer it to another account. It will reduce my weakness to take money from it rather then budget myself. Also any tax refunds/rebates will go into it directly.

    I just opened a checking account through ING because I am tired of paying atm fees to get money out of my credit union account. I calculated at least $30 bucks this years so far. I learned there are tons of free atms in my area since ING registerd with Allpoint.

    I am using the 2nd checking account for my daily expenses and as a method to create a budget. I was thinking about having a set amount automatically transferred each pay period but I only get paid once a month. My issue is with blowing through my money too fast and then needing to rely upon credit cards to get to the end of the month. And I know a lot of it has to do with spending money on food and gas. So I may choose to have a certain amount transferred each week and then not carry the other cards at all. Probably should keep emergency cash stashed for gas.

  8. I use ING for my main checking (I also have a B&M bank, but use that just to cash/deposit checks). ING allows me to set up multiple Savings accounts (think folders in your inbox). Examples of how I use the accounts:

    -my long term savings/emergency fund that I never (so far) take money out of
    -saving to pay off a 0% financed credit card
    -monthly rollover (think AT&T rollover minutes). If I underspend one month according to my budget, I rollover to this account in case I need to dip into it the following month. It also helps for planned large purchases (not spend $100 extra a month for 4 months to buy that $400 thing I wanted).

    I use two credit cards. One for personal expenses and another for business reimbursable expenses. I use my credit card for almost everything cause it helps me track my budget much easier. It helps that I have self control and don’t use my CC because ‘I can’.

  9. My friends and family think I’m nuts. I was always a spender, no savings, never able to get ahead. Then after I got married I started being able to budget a lot better. My set-up is very complicated at first glance, but really it is a lot better for me.

    My wife and I each have a Checking and Savings account, plus a Joint account of each in my main bank, for 6 accounts total. All paycheck money gets direct deposited into our individual checking accounts, and we then transfer our portion of “Budget” money into the Joint Checking account each paycheck. Bills get paid out of that account.

    In addition, I have approximately 33 Savings accounts (through Emigrantdirect). These accounts are for specific things, and each one is labelled as to it’s purpose. “Budget – House” (for mortgage payments). “Budget – Utilities”. “Budget – Car”. “Trip – Paris”. And so on.

    It may seem complicated to keep track of all that, but the beauty of it is, I put a little bit into each account as possible (monthly 10.00 payment into Utilities, for example). The goal is to save about 6 months of savings for each particular monthly expenditure. The benefits of doing it this way are having a better idea of how much is needed to survive in case of trouble, and more importantly, the guilt factor.

    Sure, I have 6 months of gas money saved up, and I *could* use it to buy something neat, or to pay off an unexpected bill. BUT because that is “earmarked” for gas, it is a lot harder to justify using it for something else.

    This system has allowed me to go from paycheck-to-paycheck living to actually getting some money socked away – right now we are up to about 3 months security should this economy affect our jobs. That peace of mind is worth the extra couple hours each month I spend in allocating our resources (I have a spreadsheet that I keep updated with current spending on every account we hold).

  10. I was just thinking about this today. I currently have two checking accounts: one at my b&m bank, and one at ING, along with six ING savings accounts: emergency fund, medical fund, house savings fund, car savings fund, vacation fund, and currently laptop fund. The last one I change for whatever my savings goal is at the time (ie, furniture, laptop, etc). I also have a 401k, and am opening up a Roth IRA soon. I don’t use my credit cards anymore ever since I paid them off.

    I direct deposit my monthly bills into my b&m account, with a little bit of cushion, and then a set amount in my ING checking for spending. This includes food, gas, entertainment. And the rest is split among all my other savings.

    I like David’s comment about the rollover fund. That way I’ll have a temp backup on daily expenses without actually dipping into my real emergency fund.

    I feel like I’m doing pretty well for most people my age. I’m 22, and I thank everyone who has given their two cents on finances. Between that and the few years worth of me digging my own whole, I finally got it right! :)

  11. Hi Shane, I’m 21 and was always really bad at finance so I decided to do something about it.

    In your post you mention you don’t use your credit card… now I don’t know for sure (I’m not from America and don’t have a credit card) but I think there are certain benefits to using a credit card, and it builds up your credit rating (as long as you pay it off) ?

    Anyway I’m looking into getting one (with no yearly cost, of course), and hiding it somewhere in my room… I’ll use it to automatically pay my bills and I’ll set up my bank account to automatically pay back my credit card. This way when I finally want a nice homeloan, I’ll have a good credit history to back me up :)

    So I recommend using it

    (also, I have a very similar system to all of you, in terms of bank accounts… Good post!)

  12. My fiance and I each have a checking and savings, and a joint account. We’re going to start two IRA accounts, I just opened a checking at Suntrust as an emergency bill account. Im going to start an account for emergency health care, another for emergency rent, an account for emergency food. We are basically going to have emergency accounts that we dont touch. We’re going to keep emergency cash at home also. We use our joint for clothes and as a backup, an my checking pays half hers pays half, which leaves the savings accounts for long term.

  13. I haven’t got any accounts yet. But when I start managing my own money, I will have five accounts, a transaction account, where most of my spending goes, a savings account were I save up for luxury items, and another savings account for my bills.

    Also I will have a investment account set up when I have enough money, for when I want to do something special.

  14. David, is this still the way you control your spending? if not could you update it. I’m curious to know how you go about your spending now.

    Thank you,

  15. Nice article, then i’mn not so crazy as i thought ^_^. I do it too…but so far only enveloples ha ha and one 2 bank accounts for checks

    Hmmm I’m curious, can a person have multiple savings accounts in one bank? let’s say I want to save money for traveling and to keep it separated from my “regular” savings…is it possible? :p

  16. @Carlos,

    Absolutely – many online banks allow this and I think brick-and-mortar and CU do too.

    I use Ally personally and I have my name and under my name I have 8 accounts (called “sub-accounts” by some people). I can name them whatever I want and I can transfer money in and out of them (up to 6 withdrawals per month) between those accounts and between the Ally and my USAA accounts…

    It’s really great for separating out House costs from Vacation costs from Emergency Fund, etc…

  17. I have two checking accounts and one savings account. I do basically the same thing everyone else does. The ony way I differ is that in my savings account I keep a spread sheet of different “buckets” One for house,truck, and emergency fund ect. That way I only have a few accounts but can earmark stuff for different purposes. Simple and streamlined.

  18. I manage all complications related to money in a simple way with three accounts:

    1.For future saving purposes

    2.For donation and other timely requirements of friends and family

    3.Day to day needs of mine

    When money comes to me I decide what part of money should go to which accont

    Its so simple..

  19. Wow. Thanks for sharing. Mine is this:
    1. Checking account: where my salary is deposited. I use it to pay my bills and such.
    2. Online savings account: for my emergency fund.
    3. Savings account at another bank: for my nest egg (investments)
    Maybe I’ll open another online savings account for my short-term savings like a vacation.