Most people believe that just knowing how to balance a checkbook is sufficient to simplify your finances these days. And while there are numerous benefits to having a checking account–there are times when it requires a bit more skill and resources to balance your budget.
Keeping track of your finances often requires a daily, weekly, or monthly tally of your expenditures. Just as well as your income… There are mortgage or rental payments, car notes, daycare, bills, and savings. You will also discover miscellaneous items to account for.
Sometimes these basic things need to be divided into separate categories and then divided again into separate accounts. But basic checking and savings accounts won’t always cut it… There are times when several accounts may be required to get the job done.
Multiple Savings Goals
While just the ability to have a savings account is something that everyone should strive for that doesn’t mean that all of the eggs should be put into the same basket….so to speak… Savings can be for a variety of different goals like …
- A new car fund
- Vacation fund
- New wardrobe
- Some extra rest and relaxation
Life has a tendency to get all of us down from time to time –but that doesn’t mean that we have to be unprepared either… Major events like a job loss or layoff, home repair due to a natural disaster, tire blowout on the freeway, or family emergency aren’t usually avoidable. Putting a special fund to the side for these situations, of at least $1000 for starters…can help tide you over until things are more financially secure.
There are over 20 popular budgeting apps on the market such as Monefy, Mvelopes, YNAB, and Dollar… just to name a few. Some people prefer to use a good old-fashioned Excel spreadsheet or word processing document to keep track of finances…
For those of you who consider this too complex or costly, then you’ll be happy to know that different bank accounts are an easy way to manage your money. By opening an individual bank account for each set of expenses, you can be sure to not only have enough funds. But also prevent being underfunded or going over on your budget.
An example is to put say $200 per check into a bills account, $400 bi-weekly into your mortgage/rent account (depending on the total payment ), and $150 per pay period into daycare… The idea is to split your expenses into varying deposits per account with each one being used solely for their approved purpose.
Over the past decade or so many people are redefining what retirement means to them. Technically there is a traditional route with a three-pronged approach ( social security, 401k, and savings)… You may prefer a more non-traditional approach like F.I.R.E. This method is where you save 50 percent or more of your income for a decade or two. The savings allow you to live off of a percentage afterward. There may be limits on the yearly contributions to some of the retirement vehicles available. However, you can have as many accounts as you wish to define what retirement life looks like for you.
Many people have ventured into self-employment over the past few years as more and more individuals value their time differently. When just starting out, depending on your tax structure(such as a sole proprietorship) you may be tempted to keep your funds in one simple account.
However, to fully appreciate the experience of business ownership it’s best practice to keep those funds separate. Most banks will require a separate business account and to receive full tax benefits.
In many cases, the IRS will as well… If you get confused by the accounting requirements you can always speak with a tax professional or accountant based on your business structure and state laws.
No matter the reason or method for the need to separate your finances… there are many benefits. Whether you have three bank accounts or ten, each person’s financial management requirements are their own to keep track of. Once you have a grasp of your full financial picture, you’re on your way. From there you can devise a system that works best to simplify things for your situation.