Using Multiple Bank Accounts to Control Your Spending
June 14th, 2007 11:19am EST
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 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!
On Jun 14, 2007, Merry Maid said:
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.
On Jun 14, 2007, Money Under 30 said:
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.
On Jun 25, 2007, beth said:
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?
On Jun 25, 2007, karla (threadbndr) said:
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.
On Jun 27, 2007, Silvia said:
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.
On Aug 5, 2007, Paul said:
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.