One of the surest ways to improve your personal finance experience is by having a healthy savings culture. This, you can achieve by having multiple savings accounts.
Most people desire to build and grow their wealth but it takes time, patience and commitment to achieve this goal.
Building wealth generally happens in 3 simple stages:
- Making money. The first step is ensuring you have a source of income since you cannot start saving money that you don’t have.
- Keeping money. Once you start making a consistent amount on a regular basis, then you can get started on your savings journey.
- Multiplying money. After you’ve been able to save consistently, it’s now very easy to become a regular investor.
Most people save because they have particular goals that they intend to achieve in a set period of time.
For instance, for a trip, a birthday treat for a friend, for a Christmas holiday, to purchase that car, laptop, skincare etc.
Goal-based saving is the most efficient way to achieve your financial goals.
Whether it’s a short-term, medium-term or long-term goal, saving is one sure way to accomplish your goals.
So, why is it important to have multiple savings accounts?
We all have different and multiple goals in life. This means we also need to have multiple savings accounts.
One savings account cannot efficiently serve all the goals that you have considering that all these goals even have different timelines and different financial requirements.
First, you need to determine what exactly your goal is. If you can specifically target your goals, then it is very easy to save up for them.
When I first started my personal finance journey, I had one account where I’d put all my savings. If a situation came up, that was the only account I’d withdraw from.
I started experiencing a challenge whereby a situation would come up and it would drain the whole account leaving me with no money to cater for other situations that came up.
That’s when I started realizing the importance of putting my money in separate accounts and assigning each account a role.
My two best being, an emergency fund and a sinking fund.
Read more on how to build your first emergency fund.
Here are the reasons why having multiple savings accounts works:
1. It’s easy to track your progress on your savings goals.
If for instance, you have a target of saving 1 million in your emergency fund, you can actually keep tabs every month.
If this month your balance is at 50,000, then 70,000 next month and so forth, you’ll know with regards to this goal, this is where exactly you are.
It also makes it very easy for you to segment where to put your income as you’re saving and to be able to automate those savings.
You’ll also get to know whether you’re slacking on one goal or you’re really focusing on one goal and neglecting another.
2. It reduces your chances of misspending or overspending.
Having all your money in one account really increases your chances of spending that money on things you hadn’t planned for.
I know of situations where I’ve faithfully been saving then one thing comes up and just empties my account and I’m back to zero.
One of the most efficient ways of preventing this from happening is by having specific accounts designated for particular purposes.
Knowing that an account is specifically for emergencies means you will not randomly take money from that account to buy shoes or treat yourself.
This also takes lots of discipline and commitment from you.
3. It helps with easy decision-making.
Another reason why having multiple savings accounts will save your life is that it helps with decision-making.
This is in regard to what to spend on, how much and where the money is coming from.
If it’s vacation money, you know exactly where the money is and you won’t have to go back and forth on your expenses.
It also makes it easy as you are keeping tabs on your goals. For instance, you can find out that you’re not putting in enough on your travel account which tells you, if you don’t up your game on this, you won’t travel.
Since your finances are now well-planned and organized, you’re able to make certain decisions on a monthly, quarterly or annual basis. You will know where your focus should be and what exactly you’re working to improve.
4. You’ll get to discover and take advantage of higher interest rates on your savings.
This will depend on how actively involved you are with your finances.
I, for instance, have 3 money market funds. One serves as my emergency fund and the other two are sinking funds.
These are all in different companies.
It’s very easy for me to compare the different interest rates, and the pros and cons of the different savings accounts.
This way, I’m in a better position to decide whether to open, close or even put more money in a particular account based on the benefits I get from each.
Having multiple savings accounts will help you discover and take advantage of better savings options with greater benefits.
This also helps with the diversification of your investment portfolio.
I always recommend Money Market Funds for savings as opposed to bank savings accounts.
This is because you get a chance to earn interest on your money as you save. You’re both saving and investing.
5. It will boost your motivation once you start seeing your progress on your goals.
When you’re able to see your progress toward a certain goal, you’ll get motivated to keep going.
Like with any goal, seeing your accounts progressively fill up to what you intended will pump you up to keep saving or even increase your sources of income to have more to save.
Those are the major benefits of having multiple savings accounts.
Remember, don’t just open random accounts just for the sake of having multiple savings accounts.
First, acknowledge what your needs are, how much you want to dedicate to these accounts and how you will use these accounts to achieve your goals.
You cannot make a lasting decision on how much you want to dedicate to an account without first having a working budget.
In case you currently don’t have a budget, here’s a budget tracker you can start tracking your savings goals with.