You know that putting money aside is a good idea, but counterintuitive though it might seem, putting it all in the same place can make your budgeting more complicated than it needs to be.
To keep things straight, why not sign up for multiple savings accounts and divide your savings for specific purposes?
Think of multiple savings accounts as folders
Like the old-schoolenvelope or bucket budgeting systemwhere you take your money and put it into an envelope marked for a specific purpose, this approach works the same, except its digital and automated by your online bank.
As an example, you could have savings accounts for different categories, like this:
Emergency fund
Taxes Fund
Vacation fund
New car fund
Wedding fund
The idea here is that by seeing all your saving goals separately, theyll be easier to track.
If you have just one savings account, on the other hand, youll only see an amorphous blob of total savings when you see it on your banks website, forcing you to track targeted savings somewhere else, like in a spreadsheet.
Plus, the other advantage to separate accounts is that its much easier to manage different goals at the same time using automated payments from your checking account.
For example, you might put away $250 a month for six months to save for a vacation, while concurrently saving $100 a month for two years to pay for a new computer.
Avoid monthly fees when setting up multiple savings accounts
Unfortunately, the savings accounts that you get from brick-and-mortar banks almost always have monthly fees (usually $5-20) or high minimum balances.
Thats why you should stick to online banks, which typically dont charge monthly fees, have low minimum opening balances, and offer some of the highest annual percentage yields in the market.
To help you get started with multiple savings accounts, Nerdwallet has a good selection of online banks you could choose fromhere.
This article was originally published on July 25, 2017 and updated on June 10, 2021 with new information and to reflect Lifehacker style guidelines.
