We all know saving money and setting financial priorities are smart ways to achieve our savings goals. So how can you combine both of those important practices more efficiently to achieve these goals faster? By taking advantage of multiple savings accounts, you can allocate different amounts for specific reasons, enabling you to make better budgeting decisions and set yourself up for financial success.
In general, a savings account is a good place to accumulate your money until you are ready to spend it. A low-cost savings account is an excellent tool to help you track and save your money while also earning interest and minimizing fees. If you have multiple financial goals, it’s hard to know the specific amount earmarked for each one if you deposit all your money into one account. For example, if you are aiming to buy a home, pay for your kids’ college, and go on a dream vacation, it can be challenging to track the specific amount of savings set aside for each goal.
A better strategy is to have multiple savings accounts, with each one dedicated to a different objective. This makes it easy to track progress for each account, as well as automate deposits, and hold you accountable for each goal.
Know Your Goals
You’ve got goals. Let’s achieve them together using a smart strategy that can work for the dreams you want to achieve. The first step side is defining what you want to focus on - for example, you may want to:
- Plan for emergencies
- Buy a new home
- Purchase a car
- Go on a dream vacation
- Save for future college costs
Once you know what you’re saving up for, spend some time considering the appropriate amounts needed to help you get there. As you start to accumulate savings, you can always change the amounts you are dedicating to each goal.
Track Your Goal Targets
Maintaining a separate account for each specific goal will inspire you to better save towards them while also knowing exactly where you’re going to use your money. For example, if you are aiming to save the equivalent of three months’ living expenses for an emergency fund, having that money in a separate account gives you peace of mind that you are prepared for emergencies. It also means that once you have reached your target, you can leave that cash in the savings account to earn interest until you need it.
In another example, if you have been dreaming of a vacation, putting your money aside in a vacation club account will give you that extra motivation since you know what you have saved and exactly how much more you need to get you there. The same benefits apply to every type of goal you have—with different accounts, you can easily track the savings accumulated towards each future goal, as well as earn interest or dividends.
A second benefit of multiple accounts is the automatic deposit feature. If you have a young child and are saving for future college costs, it can be easy to put it off or spend that money now since college seems so far away. Having a dedicated account for future college tuition (maybe a separate account for each child) gives you the peace of mind that you are saving for their education. You can reach your goals faster by setting up an automatic deposit into different accounts directly from your paycheck or transfer from any of your other accounts. This will ensure that you are consistently working toward all your goals.
When you have a single savings account, it’s very easy to spend money that has been allocated for a different purpose. If you are ready for your dream vacation and have enough funds in your single savings account, it can be hard to hold back from spending money that was reserved for a different purpose, such as an emergency fund or buying a home. Having separate accounts holds you accountable, so you are less tempted to spend the money saved for your future home down payment on a week away at the beach.
Maintaining multiple savings accounts is a constructive way to work towards your goals because it allows you to easily track your savings and make consistent progress. Through all of this, you can build accountability for yourself and move toward a successful financial future!