Alicia Nelson-Bell, Empowering Financial Wellness Program Coordinator
Do you want a simple financial action step that thousands of people have taken that has brought them success? Who doesn’t? We’ve got one for you.
If you’re like many Americans, saving money and reaching your savings goals while managing debt can be hard. Research from the American Psychological Association shows that only about 40% of the American population can cover a $400 expense without going into debt. Even worse, about one third of the population has $0 in savings. What can be done to help individuals be more successful at reaching their savings goals? Open multiple, named savings accounts. Experts say this simple strategy has brought many people greater success in reaching their financial goals. Let’s break down the benefits that multiple savings accounts can have:
Tracking progress towards your goals: One of the main benefits of separating your savings funds is that it’s easier to track progress towards your different goals. When you only have one all-encompassing savings account, it can be hard to really tell how you are doing at reaching your goals and see how much money you have set aside for each individual goal you are working towards. Are you trying to save up $10,000 for a down payment on a home? How about $5,000 for your deductibles (car, health, etc.), or a $7,500 trip somewhere? If you only have one savings account, how do you know how close you are to reaching these goals, and if you are going to be able to reach your targeted amount of money by your target date? Separating your funds into named accounts can help with that!
Avoiding Misspending: If your emergency fund is lumped in with your travel fund, it can be easier to dip into your emergency fund so you can go on that trip to Hawaii sooner or to splurge when a store is having a sale. These aren’t really emergencies. According to Bankrate.com, “Setting up separate accounts can create boundaries, which can act like a big red stop sign that says, ‘Don’t touch unless it is for this specific purpose’”. Many people treat the holidays as though they are an emergency, when in actuality we know that they come around at the same time every year and can be prepared for accordingly by contributing to a specific fund on a monthly basis. Many people find themselves less likely to overspend on the little daily expenses if it means dipping into their Hawaii fund or their new car fund to cover it.
Having your funds separated in named accounts can also help you have a clearer vision of how much money is currently available for those goals rather than seeing a larger combined amount that makes it feel like you have more money available for your individual goals than you do.
Increased Motivation: Being able to quickly and clearly see how much money you have saved up towards each specific savings goal provides great motivation to keep you going, especially when the going gets tough and you want to treat yourself or you’re tempted to overspend. If you can check your bank accounts and see that you are only a couple hundred dollars away from reaching the targeted amount for one of your goals, it can motivate you to plan to reach that goal as soon as possible. Those motivational moments to make sacrifices to reach your goal even sooner are harder to come by without separate savings accounts.
How to do this??
There are a couple different ways that you can separate your funds according to your goals; 1) open separate accounts at the same banking institution, 2) open separate accounts at different banking institutions or see if your current banking institution will allow you to set up sinking funds. Sinking funds are essentially sub-savings accounts within a savings account (Check with your bank to see if they offer these).
Each of these have pros and cons and it is important to evaluate those as you decide how to best approach separating your savings funds. For example, you may decide that different accounts at different banks are more difficult to keep track of. On the other hand, if you keep all your savings accounts at the same institution, you may decide it’s too tempting to make transfers when you overspend. You decide what works for you.
A Couple Pro Tips:
Make your finances more personal by giving your savings accounts names and have fun saving and reaching your goals!!
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