Most of us have two bank accounts – one saving, one checking. Have you ever considered opening MORE accounts to help you organize your money better? If not, then you should!
For my husband and I this is one of the single easiest things we did to get us out of our scary financial situation… and fast. And no, you don't have to have lots of money to do it. In fact, we were living paycheck-to-paycheck at the time and were in the red most months.
This post all started because I did it in a live TV Segment, and it went viral since then (it was even featured on LifeHacker)! I hope you are able to find a way to make this system or a similar system work for your family. If it helps even a fraction of how much it's helped my family, I am happy for you in advance 🙂 Without further adieu, introduce to you…
THE 7 BANK ACCOUNTS YOUR FAMILY SHOULD HAVE
When you file your important papers, you keep them all in the same filing cabinet. But are they in a big pile inside the cabinet? No, they are in multiple filing folders to compartmentalize, organize, and help you keep track of things you need.
So if your papers aren't tossed into one big drawer, why would you toss all your money into one big bank account?
Most families have one savings account and one checking account. This is has been the norm since dinosaurs roamed the earth. While it works well for many, I challenge that having only one or two bank accounts can make it harder to keep track of your money. The fact is, MOST families statistically have trouble making and keeping a budget. This tells us that the system might just not work that well! Thus, I'm going to propose 7 bank accounts your family should consider opening that will help you organize your money and save your family thousands.
WATCH MY BANK ACCOUNT VIDEOS
Here is an updated video summarizing the 7 bank accounts and answering all your questions about them!
Additionally, here is the TV segment I did originally introducing the 7 bank accounts concept years ago if you want to check that out as well:
First things first… the biggest question I get is “Doesn't having lots of bank accounts hurt my credit, cost me extra, and make life more complicated for me?”
Simple answer… no. Or, it shouldn't, anyway.
It won't hurt your credit unless you get into debt or don't pay your bills on time. And believe it or not, as confusing as it looks on paper, if you commit to the system, get organized, and take the time to do it right, it will actually simplify your life!
If it costs you money to open an account, CHANGE BANKS. In fact, many banks will pay you to open an account with them! So don't be afraid to change banks. It won't hurt the bank's feelings, I promise.
Before I break down the 7 bank accounts in detail, first a probing question…
HOW DO YOU TRACK 7 BANK ACCOUNTS?
If all of your accounts are with the same bank (most of our accounts are with Chase in our family) then your online bank dashboard will have all your accounts handy in one place. If your accounts are all open with different banks, you can use Mint.com which is a free service that pulls information from all your banks and presents them on a single dashboard. They have a fantastic mobile app that my husband loves more than bacon some days. You can even pay bills from Mint.
All in all, if you're willing to use a computer and phone to do your banking rather than a pen-and-paper, this method will save you time AND money.
Now, here's a further breakdown of the 7 bank accounts highlighted in the video:
FAMILY EMERGENCY SAVINGS
As a rule, 20% of your income should automatically go into savings each month, and this is the ultimate account for your savings. As a rule, this account is for absolute, dire “we are going to lose our house next week if we don't do something” emergencies. Picture it as the fireproof apocalyptic vault hiding behind concrete walls in your basement, or the piggy bank you have to shatter to open.
You should never touch this account unless it is your absolute last resort! And it should never be for anything that can be resolved in other ways, including paying off debt. Having 6-12 months to live off of is more important than any credit card payment you could ever make! Hopefully you will never have to touch this account…but good thing you have it if you ever do.
HOW TO USE YOUR EMERGENCY SAVINGS ACCOUNT
- Savings money should be automatically withdrawn from your paycheck every month (20% ideally) and deposited into this account. You should pretend that this money doesn't exist when considering your income/budgets.
- It needs to be an “out of sight, out of mind” account. Don't even bring it up when calculating your money as a family, and NEVER consider it as an option for pulling money out of when needing to pay for something…unless it's a literal life-or-death situation.
- You can open this in any savings account, but I recommend opening this account through and online bank like ING or E*Trade (HERE are lots of great options) because it's harder to withdraw money from, and is easier to keep “out of sight”.
- Note *It certainly doesn't HAVE to be ING or E*Trade (in fact, there could be better options out there now, we've had those accounts for years). Just pick a bank outside your regular bank so that the account doesn't pull up every time you log in to your regular bank. You really don't want to be tempted to touch the money in it. EVER.
HOW MUCH TO HAVE IN YOUR EMERGENCY SAVINGS ACCOUNT
- You should have enough to live on for 6-12 months (12 is your goal, don't stop until you hit at least 6).
- You should aim to put 20% of your earnings into savings every month. When starting out, put 10% into this emergency account, and 10% into your family regular savings account (see next) until that account is built up to 3 months living…then go back to putting all 20% into this account.
- Ideally you would never stop depositing 20% of your income into this account, unless you were to lose your job and needed that % to live off of.
By having a Family Emergency Savings account that A) you automatically draft money to each month, and B) you NEVER pull money out of, you can effortlessly protect your family from the worst-of-the-worst circumstances.
REGULAR FAMILY SAVINGS ACCOUNT
Note: This is updated since the original post!! So yes, this is now conflicting with the TV segment video slightly 🙂 This is your “holding tank” account; the savings account that you can tap into when needed. This account is used told hold 3 months worth of cash to live off of at all times in case of a short-term emergency.
It's mainly used to hold money you are using to save up for something pre-planned (down payment on a house, new bedroom furniture, major home repairs, family vacation, new car, upcoming wedding, etc.), and to pay for unexpected expenses and emergencies (car repairs, new tires, unexpected home repair, etc.).
HOW TO USE YOUR REGULAR FAMILY SAVINGS ACCOUNT
- Automatically draft 10% from your paychecks to this account every month until the 3 months of cash is saved up, with the other 10% going to your Family Emergency Savings (above).
- Once 3 months of cash is reached, no more automatic deposits from your paycheck into this account – only deposit leftover money at the end of the month. If you need more money in this account, you're going to have to cut back on your spending throughout the month! You never want to stop depositing the 20% into your emergency savings unless it's an emergency.
- This savings account can be at your normal bank. Try to find a bank that will pay you to open a savings account! You can get paid as much as $75-$150+, just read the fine print and make sure there are no hidden fees.
- You need to have a plan for the money in this account! Don't get in the habit of pulling money out of this account regularly – it needs to be for big purchases that require advance planning, or emergencies only.
HOW MUCH TO HAVE IN YOUR REGULAR FAMILY SAVINGS ACCOUNT
- Since this is the account used to save up for big expenses, so the total amount in this account will ebb and flow. However…
- As a rule, always keep a balance of 3 months living expenses in this account, so you can live off of it if needed for a short time before having to tap into your emergency savings.
- When using this account to pay for a big purchase, make sure to save up the full amount before buying.
Ex: Let's say I have $15,000 in the Family Regular Savings, which is 3 months to live off of (let's say – for easy math). Then, let's say we are anticipating needing $2,500 for a down payment on a car soon. We will need to be patient and save up the full $2,500 BEFORE putting a down-payment down, so that $15,000 remains in there as a constant balance. Remember, you need that $15,000 for emergencies – whether it's to protect you in case you lose your job, or someone needs emergency surgery that insurance won't cover. Don't spend that safety net! By having a Family Regular Savings account you have a “holding tank” delegated to help you save up for anticipated expenses, and help you pay for unexpected expenses, and protect your family in case you need to live off of savings for a short time.
FAMILY CHECKING ACCOUNT
This is your “home base” account; the account where all paychecks/sources of income go initially. Your money starts here, then is transferred and allocated to other accounts. This is where you pay for minor car/home repairs, oil changes, utilities and all other bills (except for medical bills, more about this below), tithing/donations, and other “family” expenses.
HOW TO USE YOUR FAMILY CHECKING ACCOUNT
- All bills are paid from this account, preferably on auto-pay when possible to avoid late fees.
- Money shouldn't stay for long in this account, because it will be divided up and allocated to other accounts shortly after depositing your paycheck.
- Set up auto-transfers to other accounts to streamline the process of sending your money where it needs to go.
- Once all your money has been deposited to this account and sent to where it needs to go, it will be easy to see if you have money leftover at the end of the month! Big pat on the back for leftover, un-spent money! Any money leftover in this account should go to Family Regular Savings. If you have 3 months living saved up in that account, have no debt, and don't need to save up for a big expense, then put half of the leftover money into your Slush Fund (below) to save up for something really fun! (and the other half into your Family Regular Savings).
HOW MUCH TO HAVE IN YOUR FAMILY CHECKING ACCOUNT
- Enough to cover your expenses for the month, trying not to have much excess leftover. Any excess money needs to go to debt FIRST, then back to your savings accounts once your debt is paid off. If it sits in your checking account, you will most likely spend it!
- But make sure you have enough in your account that you don't ever overdraw. The best way to figure out how much you need is to look at your spending habits from the last 6 months. Total up how much you spent every month, minus major emergencies (because that would come from your Family REGULAR Savings – see above). Average it out and start from there. See how to easily track your monthly budget and find good budget parameters HERE.
- Be sure to keep your bank's required minimum amount in this account at all times. Read the fine-print with your bank to make sure you don't get slapped with any fees for not keeping a certain minimum amount in that account.
By having a Family Checking Account as your “home base” account, it makes it easy to send your money to their individual “jobs” (aka other accounts), and makes it simple to see how much money you have leftover (or how much you are short) at the end of the month!
WIFE'S CHECKING ACCOUNT
Wives, I'm talking to you! Your monthly budget drafts from the Family Checking Account (see above) to this account every month. The money you spend for the month however you see fit. Whether you use cash, debit card, or credit card, it all comes out of this account.
It makes it easy to keep track of your budget, will make it hard to over-spend, and will allow you the autonomy to use your own methods for budgeting and spending for your family, and will give you a place to keep your own “fun money”!
HOW TO USE THIS CHECKING ACCOUNT
- You should use this money to cover your budgeted expenses for the month, which needs to be determined in advance by each individual family. (See tips on this HERE).
- Sit down and write out every single thing you spend money on, then divide up responsibilities! If you do the cooking, you should buy the groceries so you know what you need. If your husband is the car genius, he should be in charge of paying for car repairs. Whatever you're good at and handle regularly, that's what you should be in charge of. No, not in a sexist way, it's not about that – at all. It's simply for your family's budgeting purposes so you know exactly who is in charge of paying for what each month! Again, decide what works for your individual family based on the things you do regularly for your family anyway.
- Once the money has been deposited into the your account, you spend the money however you see fit, ensuring you cover all of your responsibilities.
- If you run out of money before the end of the month because of poor budgeting, you need to tighten up and go without until your budget starts over the next month. Consider revamping the budget slightly to give sufficient money to cover all budgeted expenses reasonably if you run out consistently…but dig deep to see if it's spending habits or budget amount that are the real problem.
- If you have leftover money, rather than spend it you should contribute to your Slush Fund (see below)! Trust me, you'll be happy you did.
- The money for this account should NOT include “family” expenses such as utility bills, home and car repairs, medical expenses, and large expenses like braces, new furniture, etc. These expenses should be put on auto-pay from the Family Checking account, should come out of the Family REGULAR savings when needed, or from the medical HSA account (see below).
- The money you spend for the month – whether you use cash, debit card, or credit card – all comes out of this account. If you pay for things with a credit card, pay off the card using the money from this account BEFORE you're slapped with any interest fees. If you use cash, divide your budget up weekly (rather than monthly) and pull out exactly what you need each week to pace yourself. See more on this HERE.
- Whatever is left over is your fun money! This rewards you for being frugal. So you can decide…”Sure, a $5 pizza would be easy for dinner tonight…but if I save that $10 and cook at home instead, I could go buy a scarf from TJ Maxx instead!” Gives you the freedom to choose 🙂
HOW MUCH TO HAVE IN THIS ACCOUNT
- This ultimately depends on your individual family situation! But in general, just enough to cover your financial responsibilities for the month.
A few guidelines for forming this budget:
- A good guide for grocery budget should be $100 per family member, per month. This includes food, toiletries, baby needs, pet needs…basically anything you could find at a typical neighborhood grocery store. I use Deals To Meals to help cut my grocery bill in half by finding what's on sale and price-matching it. See how I grocery shop for complete details.
- For everything else (I call this “other”)…and remember that this does NOT include utilities or bills… add up what you've spent money on for the last 3 months that would apply within the bounds of your spending responsibility, divide it by 3 to find the average, then knock it down by at least 25%-50%…because we usually spend more than we need to.
HUSBAND'S CHECKING ACCOUNT
All the same rules apply to this account as the Wife's Checking Account. This is the account you use to pay for your budgeted monthly expenses.
By having Husband Checking and Wife Checking accounts this gives each parent autonomy to spend however they see fit while still being held accountable for the overall budget amount. It motivates them to be frugal where possible, helps allocate spending responsibilities for a family, and makes “who is in charge of what” clear and concise…which leads to less fights about money!
HSA – Health Savings Account
NOTE – Things are changing DAILY with health insurance. This post was originally posted years ago and very well could be outdated! So do your due diligence and make sure to stay current, for it is next to impossible for me to go back and update every post of mine as things change. Here is a helpful link: http://www.irs.gov/publications/p969/index.html. Thanks!
This is technically a savings account, but I lumped it down here with the checking accounts because you are given a debit card for this account. An HSA is a tax-free savings account built specifically to hold money to pay for any kind of medically-related expense, large or small. Basically it's like a normal savings account with a debit card and everything. Except this debit card can only be used at pharmacies, Dr's offices, chiropractor's office, hospitals, and other approved medical facilities. It's a perfect way to set money aside for medical costs so it doesn't eat into your savings, and doesn't have to come out of your wife/husband budgets.
HOW TO USE A HEALTH SAVINGS ACCOUNT
- Go to www.healthcare.utah.edu to fully educate you on how these work.
- HSA's work best with more affordable, high-deductible accounts. With lower-deductible accounts, most of your money is going to a premium each month. You pay it, whether you use it that month or not. With a high-deductible plan, you pay for only what you use and still gives you protection for catastrophic events.
- You get an HSA debit card to be used to pay for every medical expense (and only medical expenses). It's used for anything from a doctor's office co-pay or prescription from a pharmacy, to having a baby or paying off surgery.
- Why use an HSA instead of a standard savings account? Any money deposited into an HSA is tax-free. For those who need a few thousand dollars a year (or more) to cover their family medical costs, this tax savings can be substantial.
See what healthcare.utah.edu has to say:
- “An HSA is all yours. Whatever you don’t spend stays there from year to year, earning interest tax-free. It’s yours even if you change jobs; and once you reach age 65, your HSA turns into a retirement account.
- HSAs are available through banks, credit unions and insurance companies. Many employers now offer HSAs, as well. You may enroll in an HSA is you have an HDHP and no other health insurance. If you are enrolled in Medicare, you cannot contribute to an HSA, the Treasury Department says.
- If you change jobs, your HSA goes with you. The money in your account earns tax-free interest, just like an IRA.
- Young people in good health may benefit the most from an HSA, because they tend to have lower medical bills, and over many years the accumulated savings can be significant. Also, if you lose your job or are laid off and are collecting unemployment insurance, you can use your HSA funds to pay for routine health expenses and health insurance premiums, tax-free.
- People who have lots of doctor office visits, such as families with small children or people with chronic health problems, often pay more out of pocket through an HSA than through a health maintenance organization.(healthcare.utah.edu)”
- MAKE SURE to read the fine-print. Some HSA's are “use it or lose it” accounts, or have fees attached. Both of these things are unnecessary.
HOW MUCH TO HAVE IN A HEALTH SAVINGS ACCOUNT
- You should have enough to cover all perceived medical expenses for your family for the year, without depositing too much extra. Obviously this will vary from family to family. Look at your medical bills for the last year (or even two!) and use that as a place to start. Deposit what you can afford each month. For my family, we have $400/month automatically withdrawn from my husband's paycheck and put automatically into our HSA…in addition to setting money aside in our Family Emergency Savings and Family Regular Savings.
- For my family, we deposit $400/mo into this account and we consider this as port of our 20% savings.
By having a Health Savings Account it will keep family savings accounts full and organized, and ensures sufficient funds to pay for medical expenses. It prevents having to dip into the Family Regular Savings account to pay off medical bills, and is a great solution for affordable healthcare. It helps you plan and prepare for expected and unexpected medical expenses, allows you to only pay for the healthcare you use and need, all while giving you tax-free savings.
“SLUSH FUND” ACCOUNT
Optional 7th account. Think of this as your spare change jar. This is the account where all extras go. At the end of the month your debt bills are paid, your 20% has gone into savings, all accounts are accounted for, and you still have extra! Toss it in here, and this is your 100% FUN MONEY account! This money does NOT go toward bills or mundane things in any way. Once your debt is paid off, and your savings is under control, this account is your reward for spending wisely. Picture the movie “Up”. They had their Paradise Falls savings jar that they threw their spare change in for years.
But they kept having to break the jar open to pay for emergencies and other things that kept them from ever going to Paradise Falls. Don't let this happen to you! Keep other jars for emergencies, and keep your “fun money” jar for just that…fun money.
HOW TO USE YOUR SLUSH FUND ACCOUNT
- You need a plan for this money. It could be for a new TV, vacation, a trampoline, or something else fun that your budget might not allow for otherwise.
Example: For my family, we want to go to the 2016 Olympics in Brazil but we are working on building up our Family Emergency Savings right now, thus, we don't have any extra cash to start saving for the vacation. Spare money here and there goes into our Slush Fund (extra birthday money, leftover budget, etc.). While we only have $255 in there right now, that's $255! Of spare money! Our goal is to grow that over time so when 2016 hits, our vacation is paid for.
- Get your family involved on this goal. Have it be a community fund where any extra money gets contributed toward a common, exciting goal. Make a chart for your fridge, or put pennies in a jar to represent every dollar put in the account. Make it visual, fun, and exciting for the family.
- Sadly, you really should only put money toward a slush fund once your debt is paid off (except your house) and have 6-12 months to live off of between your two savings accounts. But hang in there, take care of your family first, and the fun “extra” money will come soon enough!
HOW MUCH TO HAVE IN YOUR SLUSH FUND ACCOUNT
- This depends on how conservative you are with your spending! This account only holds EXTRA, un-spent funds, so the less you spend throughout the month, the more you will have in this account.
- This account may build up very slowly. It may be as simple as $10 leftover in a grocery budget from the week, or $100 of a tax return that wasn't needed for other accounts, or leftover birthday money that a child wants to contribute. Think of it as your spare change jar that sits in your laundry room. Instead of throwing your ‘spare change' in a jar, throw it in this account!
- Setting a goal for this money is key, so it doesn't burn a hole in your pocket too early!
By having a Slush Fund Account this encourages a united excitement for spending wisely as a family. It gives everyone a common goal to work for, and allows for a family to spend money on something 100% fun that they might not be able to spend money on otherwise. It encourages saving, budgeting, and delayed gratification. Technically, the list could go on to 8 and beyond. But since it depends on how many kids this next one has, I will leave this as “additional accounts”…
KIDS' SAVINGS AND CHECKING ACCOUNTS
For every child you have, I propose opening up their own checking account, and savings account. From day-one you could be drafting a few dollars a year (or however much you can spare) into their savings account, helping them to save up for college, their future wedding, a religious mission, etc. It's also a great place to deposit their birthday money into it when they're too young to really use or care for money yet.
Once they are old enough to make their own money (allowance, work, babysitting…) you should encourage them to put at least 1/2 into savings, and to manage the rest into a checking account. Teach them to write checks, use a debit card, the whole 9 yards! Yes, even an 8 year old can understand these concepts if you teach them well enough. Start your kids off on the right foot; being financially wise, secure, and comfortable with finances in the real world.
So, there you go!
Rather than tossing all of your money in to one savings and one checking account, try opening these 7 (or 8 or 9 or 10…) bank accounts. It may be just the step your family needs to get your budgeting and spending on-track! Let me know how this works for you, I love getting your feedback 🙂
Check out even MORE budgeting tips below:
- Beginner’s Guide
- Where do I even start with budgeting??
- Simplest Budgeting Method EVER! + FREE printables! (Updated, new, and improved!)
WHILE YOU'RE HERE… Don't forget about my Secret Sauce online budgeting program, Budget Boot Camp! Super fun video program that makes money easy to understand. All you need is a screen and you're set!
And don't forget, if you don't save at LEAST what you paid for the program, I'll refund every dime. You've got nothing to lose! Use the code FCFBLOG to get an extra 10% off, because I love you 😉
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