Jul 16, 2009

The Psychology of Having Multiple Savings Accounts

Back in 2007, I finally designated a savings account specifically for money to pay infrequent bills – things like life insurance, car insurance, homeowner's insurance, property taxes, disability insurance, etc. I calculated how much all of these expenses cost annually, divided by twelve, and began transferring that amount into the Infrequent Bills Account each month, minus whatever payments were due that month. About three times each year, I have to take money out of the IBA to pay all of the bills due that month. It all balances out, though, and knowing that the money for those bills is always available and accounted for makes my bill-paying very easy.

So it's no surprise that I've become a fan of having multiple savings accounts for specifically designated purposes. I've taken to keeping these accounts at ING Direct simply because it's so easy to open a "subaccount" there (once you've figured out how to do it – the first time, I had to hunt down directions). We now have a "car fund," which gets a monthly deposit roughly equivalent to a car payment. The money in this account will naturally be used to pay cash for our next new car (which, if all goes according to plan, will be in four or five years).

As I mentioned earlier this week, I recently created a "mortgage fund," which now gets a monthly deposit that's half of our debt snowball. Psychologically, I like keeping the money separate from our regular savings/emergency fund. It seems less available, somehow, although of course it's not. And keeping the money in a separate account makes it easier to stay on track with our original six-year payoff plan, if we decide that we can go ahead and use the money to prepay our mortgage.

If you're having trouble keeping track of the amounts you're saving for specific purposes, I highly recommend trying separate accounts. Just be sure not to open so many that you can't keep track of them!

Previously: My review of ING Direct


Abbie said...

Creating separate accounts for infrequent bills, savings, and regular bill-paying has really helped us "track" what money is spending money and what money is already spoken for! We do direct deposite, since my husband's payroll is flexible about it, so each amount goes directly into each account. Great post! I am linking you today in my Organizing Link Friday post...it will be up in a bit. Thanks! Abbie

Anonymous said...

I'm a big fan too! We have a line in our budget for everything, but noticed that some money was getting "absorbed" elsewhere. Early this year we opened a few sub-accounts with ING and no longer stress about the irregular bills.

Suzanne said...

I have been keeping track of multiple categories in our budget, while the money was all together in one bank account, but I really like the idea having the longer term/less regular payments kept separately. Thanks for the idea!

Chief Family Officer said...

@Abbie - Thanks!

@Suzanne - I think you'll find it makes a much bigger difference than you expect :)