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