Update: In the two years since I first wrote this post, I’ve opened even more bank accounts! Here’s what we’re doing now:
Most people are looking for ways to improve their financial management. Maybe they need a complete overhaul, or maybe just a few small tweaks, but there is usually room for some improvement.
Though it seems counter-intuitive, I’ve found that maintaining multiple banks accounts helps me to keep my finances much more organized and it helps to reinforce our family’s budget. How does that work? By separating out the major parts of the spending plan, we ensure that money only gets spent as intended.
Here’s what multiple bank accounts looks like for our family:
Main Checking Account
Our main checking account is the holding location for most money, and where spendable money lives. My husband’s net paycheck is deposited into this account, and distributed from there. If there’s no money in this account, we don’t have anything to spend.
My Pay Account
It is very important to me that our family continues to think as if it only has one income. For this reason, my income is kept segregated from my husband’s income, and is used for very specific purposes. For the last few years, it has been going into an account to renovate our house. Now that our renovation is nearing completion, it will be designated for travel expenses and whatever other very specific things we decide.
We call this by the name of the street where the house is located. Each payday, an automatic transfer moves a large chunk of money into this account, enough to cover mortgage or rent, all utility bills, and extra to build up maintenance and repair money (for houses we own) or move-out expense money (in houses that we rent.) Typically, we try to live in houses that this amount is very close to the amount of BAH that we receive. The amount in the account fluctuates across the year with rising and falling utility bills and as we do any work or repairs to the house, but it always enough to make the mortgage or rent payment and pay the utilities.
The next most important account is our emergency fund. It isn’t supposed to be touched except for in true emergencies, and it has been handy when our PCS travel claim takes six months to get paid. Each payday, I manually move whatever amount my husband’s pay exceeds our spending plan amount. When we were overseas, and had currency fluctuations and Cost of Living Allowance, it could vary from a few cents to a thousand dollars each pay day. Now that we’re firmly settled back in the US, it is a more stable amount. I based our spending plan off of how much he should receive every month, rounded down to the next even $500, and that extra hundred-some dollars gets move to our Emergency Fund each payday. Even if you are only able to round to the next $100 or $50, it will add up quickly.
Each payday, $400 is automatically moved into our grocery account. We have separate debit cards for this account. (I put stickers of fruits and vegetables on mine so that I can identify which card is for food.) That’s our grocery budget. I love it. If it didn’t seem excessive, I’d open another account for gasoline and another one for clothes, and have debit cards for just those.
There are a couple of ways that you can manage a car account; i.e. what things it will cover. We put $250 each paycheck into a designated car account. It is for maintenance on our existing cars and to build up the funds to purchase our next vehicle. Some people choose to also group the costs of running their vehicles into this account, including insurance, registration, and fuel, but that didn’t feel like the right fit for our family. This car account means that we’re never stuck dipping into our emergency funds when we need new tires, and that we will (hopefully) have enough to pay cash for our next used car when we have to buy it. If we ever do have to take out a car loan, payments will probably be paid from this account.
Even though Tricare is amazing insurance, we still have out-of-pocket costs, especially for things like glasses and contacts. Each month, $500 goes into that account. We pay our vision insurance premiums, dental co-pays, prescriptions, and personal trainer fees out of this account. I love knowing that we have the money for whatever surprises come up so I’m not stressing out when someone needs a crown or breaks their glasses.
Rental Property Account
We’re down to just one rental house! It has its own bank account, nicknamed with the name of the street where the property is located. Rent is received into this account, and the mortgage and other bills are paid from this account. We are fortunate that it makes a monthly profit, and that profit builds up in that account until they need to be used for maintenance or improvements. That sure came in handy last year when our long-term tenant unexpectedly left and we had to update the kitchen and bathrooms and paint and flooring and light fixtures and door hardware and window blinds.
In theory, I’ll let us repurpose money from these accounts once they each have a reserve of $10,000 in each one, but in reality we’ve never met that benchmark, even when we owned more properties. After 20 years of landlording, I am not sure that we ever will. Even after several profitable years, there are always things to be fixed or replaced. I very much appreciate knowing how I am going to pay for the expenses of these properties without having to worry about my family’s personal finances.
No one stays in the military forever. One way to prepare for transition is to wait until it is definitely happening soon, then start saving every thing you can. The problem with this strategy is that many folks leave the military with a family, and maybe a house, and suddenly the amount you need is too much to save before you take off the uniform.
I believe you should start much earlier – like today. The earlier you start, the less expensive your life may be, and the smaller amount you’ll need in that transition fund. Then, add to it as your needs increase. It is a lot easier to add a few thousand dollars to a good nest egg than it is to suddenly save a lot very fast.
Depending on your family’s situation, there are any number of other accounts that you might use. Ideas include: travel account, Christmas account, down payment account, wedding account, or a major purchase account.
Pay Deductions and Allotments
In addition to the division of money within our bank accounts, we also take full advantage of the opportunity to pay some expenses through pay deductions and allotments. Some things have to be paid through payroll deduction, such as Thrift Savings Plan (TSP) contributions or Servicemembers’ Group Life Insurance (SGLI) premiums. There are many other things that you can choose to pay through your paycheck. At various points in our married life, we’ve purchased savings bonds, had money go to a “Christmas account,” paid for insurance, and made charitable contributions through payroll deductions and allotments. Right now, we have a painfully large allotment going into the account that pays for college expenses for the two who are in school right now. If you see a way that you can automate some portion of your money management through a payroll deduction or allotment, do it!
In our case, we keep all these bank accounts with one institution to make life easier, but you may find that it helps you to keep certain accounts separate just to help keep them separate in your head. For example, if your emergency fund is with a different bank, it will remind you to only tap into it for emergencies.
This solution isn’t for everyone, but it has helped my family immensely. Before separating these accounts, all our money was lumped together and it was extremely difficult to keep track of how much money we had for various purposes. Clearly delineating the money’s source and intended use has made our financial lives much simpler and effective.
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