Did you know the average American has about 5 accounts across all types of financial institutions, according to Payments Journal? Whether you currently have more or fewer accounts, it’s worth considering the benefits of having multiple savings accounts.
Here are just four reasons why many consumers find it helpful to have multiple accounts rather than one general savings fund that they use for all their spending needs.
To Avoid the Temptation to Misspend
It’s often easier to justify spending general funds sitting in an account than it is to justify spending money you’ve specifically set aside for a purpose. Why? Because in the latter scenario, it feels like you’re actively working against your own progress by taking money from one of your own goals.
This is precisely why setting up multiple savings accounts can help cut down on the temptation to misspend your hard-earned funds. In other words, it becomes “very clear to you what each dollar is meant for.”
To Earmark Your Different Money Goals
You probably have more than one money goal, even if you haven’t written all of them down yet. For instance, Freedom Financial Network co-founder Brad Stroh outlines why it’s so important to modify your spending habits to free up as much money for savings as possible each month — because you can then funnel toward more specific goals like paying down debt, taking a vacation or working toward any other milestone you consider important.
Having one catch-all savings account tends to be less motivating than having specific accounts earmarked for concrete goals you want to achieve — like that trip to a beachside resort, down payment for a new car, a much-needed household appliance, etc. Having a separate savings account for each major financial goal makes it easier to gauge how close you are to your goals over time.
To Automate All Your Savings DepositsAs Needed
The ability to automate contributions from a centralized checking account to your various goal-based savings accounts lets you “set and forget” these efforts — although you should check in periodically to see if you need to adjust any of the automatic deposit amounts based on how you’re prioritizing your goals at any given time.
If your vacation is still a year away, but you’re anticipating needing to buy a new vehicle within the next six months, you can simply set the contributions toward your transportation fund higher than your vacation fund. Then, without any further manual effort from you, the right account will grow more quickly — helping you to meet your goal on the anticipated timeline. You may even be surprised how much progress has occurred thanks to these automated efforts.
To Set Aside Funds for Emergencies
It’s generally advisable to keep your emergency fund separate from your general savings, or from your other goal-specific accounts. Why? For one, emergency funds generally need to be quickly and conveniently accessible in case an unexpected expense arises.
Another reason is so you can make sure you’re growing this stash consistently over time rather than waiting until the future to actually do so. Even if you can only afford $10 per month, it’s more beneficial to start today then to wait for your next raise, or for the next time it’s convenient to start saving for a “rainy day.”
Above all, having multiple savings accounts helps you mentally and physically define your financial goals — then set the deposits where they need to be to help you achieve them. It tends to be harder to make excuses to withdraw money from specifically earmarked savings account than it does from one larger, generic account.