If you’re putting money away on a regular basis, you’ve probably already opened a savings account. It’s a smart decision—not only can savings accounts be a safe place to put your money, but they also allow you to earn interest that compounds over time.
Yet rarely does anyone save for one reason; and sometimes it may be hard to make sense of separate financial goals if all of your savings are accumulating in one place. The answer may be to set up multiple savings accounts—each tied to a distinct financial goal.
1. Set up an account for each savings initiative
To begin the process of saving in multiple accounts, write down your most important financial goals and/or the big-ticket items you’d like to buy. You may want to save for a vacation, a down payment on a house or car, or a new tablet, for example. You may also want to consider longer-term goals, like retirement or your child’s college education. Select four or five of your main financial objectives and open a savings account for each.
2. Decide how much to save
When selecting a percentage of your income to save, choose an amount that you can forgo comfortably. You should still be able to cover the essentials, but it might mean cutting back a little on costly habits, such as ordering drinks at dinner or eating out for lunch. Regardless, the amount you choose to save is not set in stone, and you’re free to adjust it as you gauge the impact on your lifestyle. Saving 10% of your income is considered by many experts a reasonable goal.
3. Automate monthly transfers to your accounts
The tools of modern banking—namely direct deposit and automatic transfers—make it easy to put in motion a multiple-account savings strategy.
Each time you receive a paycheck, allocate a percentage of it to each of your savings accounts. Employers that offer direct deposit often allow you to have your paycheck deposited across multiple accounts according to amounts of your choosing. Otherwise, you can deposit your paycheck into one checking account and then funnel it to your various savings accounts by way of automatic monthly transfers.
To illustrate what a multiple-account savings strategy looks like in practice, imagine you have three savings goals and you’ve decided to distribute 2% of each paycheck into three separate savings accounts. If your bi-weekly paycheck is $2,000, you’d be putting $40 into each account. That might not seem like much, but $40 every two weeks amounts to $1,040 over the course of a year, or $3,120 for all three accounts—enough for a vacation.
Your savings account doesn’t have to be a one-stop shop for reaching financial goals. Online banking has made it easier than ever to set up automatic transfers to a number of accounts, each tied to a specific savings goal. Taking time to organize your priorities — and then opening accounts to match them — will likely set you up for long-term savings success.