Experienced a pay cut? Here’s what to do next:
- Discuss a plan with family members
- Adjust your budget or create a new one
- Trim non-essential expenses
Ever feel like your savings goals are out of reach? If so, you’re not alone.
Nearly 70 percent of Americans have less than $1,000 saved—and that includes households with incomes of $75,000 or more, according to a survey by GoBankingRates. Even 6 percent of households earning at least $150,000 annually reported zero cash savings, and 23 percent reported savings of $1,000 or less.
But what is the best way to really save? Common wisdom says to open a savings account and divert a certain percentage of money there on paydays, or on a certain day of the month. With this strategy, your funds grow automatically as you continue making regular contributions and earning interest on your account.
However, some experts say contributing to a single savings account doesn’t go far enough. To make your savings “stick,” you may need to break your money up into multiple goal-driven, mini-accounts.
Nearly 70 percent of Americans have less than $1,000 saved—and that includes households with incomes of $75,000 or more.
Having multiple bank accounts can bring immediacy to your savings goals. Instead of daydreaming that you have enough cash saved up for a vacation or a new car, for example, budgeting with multiple savings accounts can set you up to realistically save money for whatever you desire. And unlike the alternative where you’re earning a paycheck and saving a portion into a single account, multiple savings accounts can teach you to purposefully divert funds to the goals that matter most in your life.
When deciding which of your financial goals deserve their own savings account, consider opening at least one for your emergency fund, says Certified Financial Planner Taylor Schulte of StayWealthySanDiego.com. Schulte and other experts suggest keeping at least three to six months of living expenses in a targeted savings account for emergencies only. This way, you’ll have money in the bank if you lose your job, take a cut in income or face unexpected medical bills. And by keeping your emergency fund separate from your other savings accounts, you’ll be less tempted to “borrow from it,” Schulte says.
Frugal living expert Lauren Greutman of LaurenGreutman.com agrees with the emergency fund angle, but also stresses the importance of having multiple savings accounts for other goals. “I have savings accounts set up for an emergency fund, vacation fund, car fund and Christmas fund,” she says. “Each of these accounts has an end goal, and when I contribute to each account I like to see how far away I am from that goal,” she adds.
Consider opening multiple bank accounts to experience other financial benefits:
“I have savings accounts set up for an emergency fund, vacation fund, car fund and Christmas fund. Each of these accounts has an end goal, and when I contribute to each account I like to see how far away I am from that goal.”
To budget with multiple savings accounts, you must make sure you’re implementing this strategy effectively. For starters, make sure juggling multiple accounts isn’t distracting you from your biggest financial priorities, Schulte says. If you’re not saving enough of your income for retirement, for example, opening savings accounts for travel and a new car may not leave you better off.
“A new car sounds like a lot more fun than retirement—and more attainable in the short term,” Schulte says. But will it help you retire? Probably not. To avoid neglecting the most important aspects of your financial life, it might be wise to sit down with a financial planner to make sure you’re on track with retirement before you start saving money for a vacation or other treat-yourself goals.
Once you’re on track with your primary financial goals, opening multiple bank accounts can only help you, Schulte says; however, it might be helpful to start small so you’re not overwhelmed.
“Start with one goal—like an emergency savings account—and save the minimum amount needed,” he says. “Then, move on to the next. Trying to save for too many things simultaneously could prevent you from making any of them a reality.”
You can also save yourself some headaches by only considering savings accounts that are easy to open, and easier to manage. “Online savings accounts are a great way to continue saving money without the hassle of driving to a physical bank,” Greutman says. For example, the Discover Online Savings Account, winner of NerdWallet’s 2020 Best Savings Account Award, offers a high interest rate and no account fees.1
“Having more than one savings account is a good idea because it creates a specific plan for your money,” Schulte says. At the end of the day, how much you save matters—but so does where you save. If you’re trying to accomplish multiple savings goals, opening multiple bank accounts may be the right plan for you. At Discover, there is no limit for how many online savings accounts you can open, and with a higher interest rate, you can watch those savings grow.
1 Outgoing wire transfers are subject to a service charge.
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