I used to have a really complicated budget spreadsheet. On the left side I had my projected monthly expenses, and on the right I had actual figures. I also had a separate column where I noted any special things to be aware of, like a check waiting to be cashed or a specific item I was saving for.
An accountant friend once mentioned that it was more complicated than his own budget. As the daughter of a CPA, I took that as a compliment.
It was the only way I knew how to operate. I kept all my money in one account, so saving for multiple goals required a meticulous and convoluted budgeting method. I operated like this for a while, but eventually decided to open separate accounts for my different financial priorities.
At this very moment, my husband and I have multiple bank accounts– eleven different savings accounts to be exact. Here are the categories:
- Car repair and replacement fund
- Home repairs
- Quarterly taxes
- New laptop
- Extra retirement contributions
I also have two separate accounts for my own goals. One is for my future leg laser wax removal and the other is for the eventual U.S. Spice Girls tour. I’m really holding out for that one. We also have an everyday checking account, and my husband and I each have separate accounts for personal discretionary spending.
Having so many accounts probably seems like a hassle, but it has actually simplified my budget. The bank I use lets me give each savings account a nickname, so I always know exactly what each account stands for. It’s also much easier to transfer money when I need to.
When I use my credit card to pay for oil changes, I go home and transfer that amount from my car repair savings account to my regular checking account. Again, this might seem like a lot of work, but I only need to make transfers a few times a year. I pay the IRS out of my quarterly tax account directly, and once my personal savings goals are funded I transfer them to my checking account.
Most of us have multiple long and short-term savings goals, but very few people use this method to manage them. We tend to think of savings accounts in a singular way, but there’s no reason to funnel your finances into a lump sum. Think of it like your kitchen — is it easier to have all your pots, pans, oils and spices piled together in the pantry, or is it better to separate everything into cabinets and drawers?
If you’re saving for an emergency fund and a trip to Spain at the same time, do you really want that money to be mixed? You’d probably prefer to know exactly how much you have saved for the trip and exactly how much you have to spend on emergencies. When everything sits in one pot, your progress on reaching financial goals become hazy.
If you’re interested in this concept — or a little confused — here’s how you can set up your own system. First, find a bank that lets you easily open new savings accounts and give them specific nicknames. Not all banks are as user-friendly when it comes to this. I personally use Capital One, but there are other banks and credit unions that offer this option. If you already like your bank, call their customer service line and see if this kind of differentiation is possible.
After deciding on a bank, determine how many different savings goals you have and how much you currently have saved for each one. Then decide how much you want to save for each goal every month. If you want to establish more goals, now is the time to factor them in.
The amount you save in each account should vary based on priority. For instance, I save $200 a month in our car repair and replacement fund and only $20 a month for my future laser hair removal procedure. It may take some adjusting before you figure out the right amount for each goal.
I have automatic transfers scheduled from my checking account to all my various savings accounts, excluding those that are already fully funded. Even though I have multiple savings accounts, I don’t actually spend a lot of time transferring money or making sure I’m on track for my goals. That’s the beauty of this system: it may sound complicated, but it’s actually very simple and hands-off after you set everything up.
I’ve budgeted this way for a few years, and I honestly can’t see a reason to go back. Gone are the days of crunching numbers and organizing spreadsheets to keep my finances in order. Now when my car needs new brakes or my husband is ready to buy a new laptop, I feel comfortable saying, “Yes, we can afford that.”
Zina Kumok is a personal finance writer and speaker whose byline has appeared in Indianapolis Monthly, the Commercial Appeal and the Associated Press. She’s been featured as an expert in the Washington Post, Fox Business, and Time.
Feature Illustration: Laura Caseley For The Money Manual