We always hear “less is more.” I am in total agreement with this rule of thumb in many situations except when it comes to budgeting. I found the easiest way to budget our money is with a multiple bank account system.
When trying to come up with an excellent way to provide us with a clear picture of how much money we have available when we looked at our bank balance, we adopted the multiple bank account budgeting system.
It is amazing how having multiple accounts simplified our finances and made managing our money so much easier. In this post, we will give you a breakdown of what we did and hopefully help you to get a clearer picture of your finances!
Why we adopted the multiple bank account system…
If you had suggested numerous bank accounts to Rob or me a year ago, your suggestion would probably have been met with a laugh. We would have laughed because we thought that we had our finances under control and we would have thought that multiple bank accounts would be a total mess and unnecessary work!
Then reality hit. We sucked at managing money!
We had become so complacent with our finances that our money was going out of our home at the same rate it was coming in and we were in trouble!
After realizing the mess we were in, we started acting like adults and started watching our money and making decisions on where our money was going to go. We adulted hard! We had a budget!
The problem was, we had one pool of money. Our money went into and out of this one account. Our bank balance had no value as it didn’t consider the money we had already spent or that was earmarked to pay a bill.
Cost of the easiest way to budget your money
If you have been paying to have a checking or savings account, the time has come to start shopping around. The competition is fierce, and banks are trying to earn your business.
If you are paying fees, you may want to step away from the brick and mortar scene. There are so many online banks out there competing for your business that will pay you to hold onto your money.
Since our preferred credit card is our Discover Card, we decided to bank with Discover Bank too. With the 1% cash back on their checking account, the current interest rate of 1.8% on their savings accounts, and no minimum balance requirements, it seemed like a no-brainer for us.
It was a good way for us to see all of our cash and current credit card balance in one place.
I am just keeping it simple!
Getting your finances organized
We adopted the multiple bank account method because we never had a clear picture of where we stood at any given moment with our money.
Since our money was going in and out of one account, our available balances never really reflected how much money we had available to spend. The money that would pay our mortgage, auto and home insurance and utility payments would sit in our account until the automatic payment drafted from our account.
We never knew exactly how much money we had available to spend.
The plan that I am going to show you is how Rob and I were able to get our finances on the right track and allow us to automatically:
- Know how much spending money we have available
- Save up for the non-monthly bills
- Increase our savings balance
- Earn money on our money
The benefits of a multiple bank account system
Simplicity is the key. If you over think this or over complicate it in any way, the results will be disastrous. I cannot emphasize the importance of simplicity enough.
When Rob and I first discussed this idea, the concept became so overwhelming that we had to step away. It was extreme. We went from one account to fifteen accounts.
We had an account for everything! Instead of simplifying things, we muddied up the waters.
In the end, we decided on one checking account and seven high yield savings accounts!
1. Know how much spending money you have available
For this to work without any additional time investment, you need to understand that the primary reason to open multiple accounts is to make things easier.
Your primary goal with this budgeting system is to be able to look at your checking account balance online and know that is the balance is the spending money you currently have available.
You must take advantage of automatic transfers and automatic payments for the success of this simple budget plan!
For us, our spending money covers our transportation, dining, entertainment, and consumables (stuff we buy from Wal-Mart, Safeway, gas stations, etc.).
Outside of that, our money is automatically stored in a savings account until the bill comes due.
2. Save up for the non-monthly bills
These known expenses can derail any budget. Expenses such as your property tax, vehicle registration, or insurance premium that inevitably comes due, and you forgot to include in the budget.
Yep, that happened to us when we started budgeting!
Look at your non-monthly bills as money you owe. Include these expenses in your monthly budget. Take your total expected bills, divide the total by twelve, and then set this money aside.
By taking the non-monthly bills and incorporating them into your monthly budget, you can eliminate the stress associated with not being prepared.
Find out more about savings accounts:
3. Increase your savings balance
If you receive weekly or bi-weekly paychecks, this multiple savings account system is a perfect way to build savings and cushion your budget, while not feeling the impact. It is designed to automatically maximize the “extra” paychecks received throughout the year.
You know, those months during the year in which there are five Fridays versus four Fridays.
Just take your monthly expenses, divide them by two or four, depending on the weekly frequency in which your paychecks come in, and then automatically transfer your money to the appropriate savings account based on your paydays.
By following this plan, you will set aside thirteen months’ worth of expenses following your first year of developing this plan.
4. Earn money on your money
By holding your money in a savings account and allowing the business to draft the payment from your savings account when it is due will allow you to earn the interest on your money for the time period between your payday and the date the biller drafts the money from your account.
Rob and I both get paid every other week on the opposing weeks. We take our annual mortgage payment, divide it by four, and then automatically transfer one-fourth of our mortgage payment to the appropriate savings account. That money sits in the account, earning interest until the mortgage payment drafts our payment.
A few things to be cautious of when you are coming up with your multiple bank account plans:
- Federal law limits withdrawals from a savings account to six times for a statement period
- Planning is critical. You may already have some annual expenses coming up that you need to include in your budget and you will need to start off with an available balance.
Before you start opening a bunch of bank accounts
Write out a plan! We are talking about your money, and you need to have a strategy. I can tell you what works for us, but that it. It works for US!
A personal budget is about YOUR money!
What are your goals? What are your priorities? Why are you doing this?
Once you have this broken down, take a piece of paper. Fold it up into six sections. On each part, put your money into like groups. If you need to, flip that sheet of paper over and use the back side. Don’t stress out! Don’t overthink it!
(Later in this post, you will see the accounts we set up to help us to get organized!)
Just remember, if you plan on setting up savings accounts, you cannot debit the savings account more than six times during any statement period.
Stay organized and be consistent
The key to this being successful is by automatically transferring the funds every payday. It is a feeling that you will have to adjust to because your checking balance will be low and as your money sits in a savings account until your bill is auto paid from the account.
Tip: Be sure to read your banks fine print. You do not want a fee assessed due to going below your banks minimum requirements.
It is an automated banking system!
Our 8 bank accounts that help us to manage our money
I know, the concept is a little mind-blowing initially! How in the heck can so many accounts be easier to manage? Below is a snapshot of the savings accounts we have today. Since it is an online bank, we were able to set them up as we went along easily.
In fact, this is such a fluid process that if needed we can easily add an account when needed or rename an account to accommodate our new financial goals.
1. Our joint checking account
This is the account where we deposit all of our paychecks and other sources of income. The money starts here and then automatically transfers to the appropriate account.
Through scheduled automatic transfers that match our paycheck schedule, our money is then transferred out of this account and deposited to the appropriate account as outlined in our monthly budget.
Our Joint Checking Account is where our money sits until we transfer the money to the designated credit card savings account where it will sit until our payment is drafted in full by the credit card company.
If credit cards are a temptation for you – – – – do not use them! Please ignore all references to credit cards in this post.
2. Done with Smoking
When we quit smoking, we decided that we will save the money we used to spend on smoking. Rob and I started smoking as kids. Smoking was a habit we truly enjoyed smoking. We loved it!
Not only did we love smoking, but we were also really, really good at it!
It was our youngest child leaving home that flipped a switch for us. As we looked around our empty home and had that awkward realization when we looked in the mirror, we saw a face we did not recognize looking back at us.
It was time for a change. We started smoking when flannels were edgy, and Lallapaloosa was new. We were cool then…now…not so much!
When we decided to quit rebelling against the world and stop smoking, we were going through our big debt payoff. Rather than just throwing this money at our debt, we kept track of what we were spending in our Done with Smoking account. We let that balance build up, felt the reward of watching the balance grow, and then took a big chunk of that money and made it our last payment toward our debt.
It was celebratory.
We took our bad habit and used it to kick another bad habit – borrowing!
The Done with Smoking account is one of our favorite accounts that we continue to use it to save the money that we would have spent on smoking; we just let it grow and then we will figure out together what we want to do with it in our future.
Europe for our 30th anniversary? Maybe!
3. Annual Bills
Our Annual Bills account is where we park our money to pay for those big expenses that come up during the year. We tally up what we think that our home insurance, property taxes, and auto registration will come to in the upcoming year, then take that amount, divide it by twelve, then and break it up into automatic transfers that occur every payday.
If we underestimate one of the expenses, we make the necessary change to be sure we can meet our financial obligations.
Autopilot and finances do not mix.
Just remember that when you set up this account, you may need to start with an initial deposit to ensure you have enough money when the first annual bill comes in. (Yes, experience speaking here)
4 & 5. Rob and Heather’s Fun Money
A budget has to have discretionary spending. For us, this is our fun money. Rob has his account, and I have mine.
Although we have made some pretty crappy financial decisions over the years, the one thing we have maintained is paying off our credit cards every month.
So, he has his account, I have my account, and then we each have a credit card. He pays for his credit card with his fun money and I pay “my credit card” from my fun money.
Our fun accounts are probably the least defined accounts. We each get a small allowance from each paycheck automatically deposited into our accounts. Both of us have full visibility of each other’s accounts, yet for some reason, we dig having a small amount of money set aside that we can be a little reckless.
Our Favorite Credit Card: Discover Cash Back Credit Card | Make Money Shopping
6. Monthly Bills
This one we had to plan out. Since there is a limit of six withdrawals from a savings account during any given statement period, the success of this account depends on making sure we do not exceed that limit.
It is from this account that we pay for our mortgage, utilities, subscriptions, internet, and home and auto insurance. In total, we pay eight bills with this money.
Four of the payments are made using a credit card.
The only amounts that draft from this account include our mortgage, electric, natural gas, our home, and auto insurance payment.
We transfer the remaining money out to the credit card account, so we can pay that balance in full every month.
7. Credit Card
When possible, we put all purchases on our credit card. If we can charge a bill to our credit card and not incur any fees, we do. Although Dave Ramsey would scold us for doing this, we can’t leave that free money on the table.
If you are not comfortable with using credit cards, then skip this account! It is not worth it if you have any reservations!
We know that no millionaires were made with reward miles and cash back, but we have turned the money back into a game that the challenge is to earn more without spending more.
Every week we transfer enough money from our checking account to our savings account earmarked for our credit card payment. This money sits here until our credit card drafts our monthly balance in full from this account.
By having a savings account for our Credit Card, we ensure that we always have enough money to pay the balance in full. Since our credit card and our bank account are all from the same financial institution, it is easy to see how much spending money is left in our checking account.
Credit Card Balance – Credit Card Savings Balance – Checking Account Balance = Spending Money
8. Emergency Fund
This money automatically transfers into the account, and then it sits there! We just look at the money and feel proud of how far we have come.
A Bankrate survey found that only 47 percent of Americans prepare for emergencies. The general rule provided by financial experts is to maintain an emergency savings balance equal to or greater than three months worth of expenses.
The survey concluded that only 29 percent of Americans could cover six months or more of expenses if they were forced to live off of their saved up reserves. The numbers are alarming.
Find out more: What Is An Emergency Fund and Why Do You Need One?
The fantastic thing about this survey is that nearly 25 percent reported feeling “very comfortable” with the amount they have, while 37 percent are “somewhat comfortable.”
The results of this study do not surprise us. We were spending our money as quickly as we made it and didn’t think twice about being in a financial hole.
Now, Rob and I find peace of mind from watching our emergency fund sit there and grow.
Many financial experts recommend keeping your emergency fund in a bank that you do not continuously monitor. For us, it is the continuation of tracking this account that keeps us focused. For us, the monitoring makes it the easiest way to a budget system for us.
It is our reminder of where we were and where we are now.
The temptation to spend money is no longer there. We find security by being aware of where we currently stand financially.
So, there you have it. The multiple bank account system is the one that helps us take control of our money. It was our digital envelope system that enabled us to pay off all of our consumer debt. Now we have a feeling of peace in our lives that we really cannot explain.
Yikes, that sounded corny…just bear with me.
Adopting the easiest way to budget system and paying off $50,000 worth of debt removed the feeling that we were trapped. Trapped with the thought that our lives would include high-stress jobs until the day that we were finally able to retire. Our future looked bleak.
Now we can look at our future and see the possibilities!
Do you manage your finances with a budget? What budgeting system do you use? What is the way do you find easiest to budget your money?