Thursday, April 17, 2008

How I Save Money (aka Why I Have Seven Savings Accounts)

I don't have just one savings account. In fact, I have seven. It breaks down like this: 2 for emergency fund (one in my bricks and mortar bank, a larger one with Ing), 1 for my IRA, 1 for my taxes, 1 for travel, 1 for my condo downpayment fund and 1 for my snowflake fund. The snowflake account is actually a checking account, but I don't use the account for anything else, so I consider it savings (I also don't put money in this account expecting to earn interest -- I earn money from this account, instead, by using it against my debt and saving money that I would otherwise pay in interest).

Keeping so many accounts may seem excessive, yet it works quite well for me. Each week I get paid, I allocate money to a different savings account (the emergency fund gets two allocations per month, and the IRA gets an allocation each check). Having these separate funds allows me to better manage my savings accounts, and to also not feel guilty when I take or plan a vacation when my emergency fund isn't fully funded. I like having more than one account, so that it's not constantly a battle to remember exactly how much of a lump sum belongs to particular budget item.

Paid Twice recently wrote about how she currently keeps a single savings account, as "all funds are emergency funds until you have a sufficient buffer." I agree with this, though I still prefer to have multiple savings accounts. Now, I don't plan vacations when I know I'm not going to be working. However, I don't want to let my not having a fully funded emergency fund from preventing me from a vacation. (Believe me, I needed the four-day vacation I took last week. A LOT. In fact, I could really use another couple weeks off (preferably on a Mexican beach), but that's something else, and something my travel fund can't currently support.) I also like to save up for things, and having separate funds for travel and a condo down payment allows me to save for these things (albeit slowly) and watch them progress and grow.

All that said, I do know that if an emergency came up next week and needed more than what's currently earmarked as emergency fund money, the condo downpayment and travel fund would be the first hit up for cash.

Too, I know that I generally don't need to tap my emergency fund too often. In fact, I really only tap it when I'm not working. Occasionally I need extra money because some irregular expense or other has come up (e.g. getting a couple fillings at my last dentist visit), but thankfully, I rarely need money for true emergencies.

It also works like this: I'm pretty obsessive about having money saved and cash stashed at home. I also know that if something Really Big and Really Expensive happened, I have a couple credit cards with fairly obscene credit limits at my disposal. Yes, I know a credit card is surely NOT the best option for an emergency, but I do feel a certain amount of security knowing I have that option if something really catastrophic happens. In fact, the friend who helped me create my initial finance spreadsheet said I should just put all my money to my debt and use the credit card for emergencies. I explained about how I must have some cash in the bank, and then we agreed to disagree on that strategy...though, if I had a regular full-time job, I could conceivably consider doing that. Though, I'm self-employed (hurrah!) and I don't plan on changing that anytime soon, so it's a moot point.

In all, I think a savings strategy needs to be done based on where someone is at financially, and what will make them feel comfortable. For some, I imagine it's more soothing to see one or two accounts with larger sums in them. Regardless of how exactly we do it, we need to save money -- and like how and how much we save, it's a personal choice.


feministfinance said...

I do something similar, except instead of having several checking accounts I have one main savings account in which I separately track different sub-accounts: emergency money, vacation money, investment money (saving up for a couple of things with high minimum initial investments), weding money. Eventually I'll add a couple more pots of money but that's about as many as I can handle right now. I agree, it makes it easier to track the money and monitor progress.

Fabulously Broke said...

Agreed.. I kind of throw everything into ONE fund for savings but I separate it out in my spreadsheet to keep track of what's in there

But your idea sounds pretty good... I should look into that

foreclosurefish said...

I have probably half a dozen accounts, as well, from savings to checking to investments to emergency fund and beyond. I don't think it sounds that excessive at all, considering that people who only have one account (with no sub-accounts or clear goals in their money management) may have 7 credit cards or personal loans. So they may have as many accounts, but they're made up of debt -- not actual money.

Danelle Ice said...

I completely agree with you and we use our savings accounts (plural) the same way! I've passed on your article at Homemaker Barbi . Thank you for the great info!

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