So far, we have already talked about the Debt Elimintation Plan and how to do it. And, we have talked about how to downsize all of your extras and put that money towards your debt.
Now- it’s time to talk about Checking and Savings Accounts! These are a big deal and I personally think they are under-valued and under-used.
How many Savings/Checking accounts do you have?
Would you die if I said that I had 3 Checking Accounts and 5 Savings Accounts for our family??
If you can have money saved, you will be ready when a money crisis occurs. You never know when your car will need new breaks, when you have a visit to the Emergency room, or if you have a leak in your roof! Instead of using a CC to pay for these items, you will want to pull from your Emergency Savings Account instead. That way, you will pay with cash and won’t incure any interest charges or fees.
- As soon as you get your paycheck, divide into different accounts.
- Put at least 10% into your Savings Account(s). Remember, if there is an emergency, you can always pull it out. If you don’t put money into savings and keep it in your checking account, you are more likely to spend it because it is there. Out of sight- out of mind!
- Don’t use money in your Savings Account unless it is an absolute necessity. “Wants” are not considered emergencies. So, especially while you are in debt, refrain from pulling out money.
I personally have a Regular Checking Account, a second Checking Account for all of the bills to be paid out of, a Business Account (for F2D), a Regular Savings Account (for Emergencies), another Savings Account for FUN, and another Savings account I use to pay contributions to my church (10% Tithing). Not to mention I have Savings Accounts for both of my children set up!
That may sound like a lot to you. But it works awesome! You probably know how much money you need each month for bills. So right when you get your check, send that money over to your Checking Account that you only use to pay bills. You can even set up auto-pay with your bank and not worry about it. **Remember to use the Debt Elimination Plan with this as well.
Then, you know exactly how much money you have left after your bills are paid. (Keep in mind that you have already sent at least 10% over to your Savings account). Now that you have a realistic idea of how much money is left in your regular checking account, it makes it a lot easier to budget!!
When you have all of your money in one checking account, it is just too easy to think you have more than you really do. Maybe a bill hasn’t posted to your account yet, or you mis-calculated. Either way, it is better to only see what you really have and can use.
If you have room with your money, I would not only have a regular savings account- but I would add a FUN Savings account too!
Regular Savings Accounts should have at least 3-6 months of living expenses saved up. If you lose your job or a money crisis hits, you will have enough to cover it.
FUN Savings Accounts are my favorite! I add 10% to my regular savings accounts. Then, I take out another 10% and put it in my FUN Savings account. We can use that money any way we like. Maybe we are saving up for a Disneyland Trip. Maybe we want new couches, or a new TV. Just save up for a few months- then, you can take out the money and do whatever you want with it!
**If you pay Tithing, I also take out an additional 10% for Tithing. It is the very first thing I take out and move to it’s own Titihing Savings account. I know once it goes in there, it can NEVER be touched. When it is time to pay it each month, I transfer the amount to my Bills Checking account and write out a check. If you can keep your Tithing money separate, you won’t get confused about how much money is really in your checking account. And, remember, it will be out of sight- out of mind and won’t tempt you to use it!
Why do we go through so much effort to organize the checking and savings accounts? Because it truly does make a difference! You will see exactly how much you are spending, what goes to bills, what is holding you back from paying off unnecessary debt and you can start to gain some control with your money!
Now that I have shared some tips on how to use your Checking and Savings Accounts.. what tips do you have to share with other F2D Readers??
Amy
Here’s my tip and one that I bet you (Malea) will get into more later in the series: once you have your savings accounts figured out, move on to bigger and better. You will be AMAZED at how fast your money grows when you have a 401k!
Heather
Dave Ramsey’s Baby Steps helped me!
https://www.daveramsey.com/new/baby-steps/
EFritz
We have practied this for a few years and found it to work really well. We split a set amount into different accounts, savings for our son, our joint savings and emergency funds and personal spending money, we ‘give’ ourselves around $50 each a month to use as we want. That way we don’t always have to ask each other if we want something small or we can save our personal funds a few months and get something bigger. It helps to let off a little monetary steam without hitting up our bill accounts or savings!
Also shop around for higher interest rates on savings accounts. You can always move funds to get a better rate. Some companies even offer rewards or extra cash for new account holders.
Mandy
Melea, do you have all of these accounts through the same bank or credit union? Or do you use different banks or credit unions for each account?
Carie Kellough
I do the same thing… For my savings account, I have it at a different bank with a debit card where I have to go inside to get the money. I do have internet access that my mom can access to send money to me from that account if an emergency was to arise on a weekend. It is too much of a hassle to go in and fill out the paper to get money out.
Lori
A note on tithing you can set-up on bill pay and it works great. You don’t have to wait for your check to clear. I have it set up so it goes out the day we get paid.
Kara
How do you do that, Lori? Through the church website? Awesome!!
Heather
Kara, I have an e-mail on how to sign up for paying your tithing through bill pay. If you’d like it just e-mail me at soccerchica-93@hotmail.com 🙂 Just keep in my that it’s sent to a general account meaning it’s not for your ward, it will explain that in the e-mail as well.
brittnee
But you should note that that tithing doesn’t get reported to your ward so when tithing settlement comes around the ward accounts shows you at nothing. We have bill pay set up and it mails a check to our bishop who then deposits it. Several people in our ward do it that way.
As for eliminating debt we use Dave Ramsey. We have a checking account at a separate bank than our main back and that is our emergency fund. We do have a savings account there that is used for yearly expenses like costco membership and auto registration. Our main checking has bill pay that sends money every week into our emergency fund. At our main bank we have two checking and a saving account, main checking is used for all our bills, the second checking is used just for paying mortgage and our current debt snow ball item. The savings account is used for our house repairs (they suggest saving 10% of your home value each year for repairs). Everything else like groceries, household items, pet supplies, clothing, etc, we get cash back for that way we aren’t over spending.
Kathryn
We use a really similar system, except that our “spending money” (including groceries, travel, prescriptions, hair cuts, car maintenance, etc…) gets divided up into envelopes instead of separate savings accounts. So, as soon as we get paid, bill money goes into one account, savings goes into another, and then the rest gets divided up into envelopes. Using cash has really helped us become aware of how much we’re spending and it’s great for budgeting because when the cash is gone, it’s gone!!
Michelle
Your method would work perfect for me! My bank accounts ended up negative, so I can’t put money in them at the moment. So this envelope idea will be perfect for me. Thanks!
C. Couponer
I have a question; My husband and I aquired a lot of debt while we remodeled our house. We’ve decided we can get out of dept in two years if we use our tax return to pay off a vehicle, giving us a good chunk of change to snowball onto our other debt. Should we try and put money into savings while paying off debt? Because the debt interest is currently costing us money, so its hard to justify working on savings till we our out of debt.. Thank you so much Melea! Because of your debt posts you are helping my family get Excited about getting out of debt. Its something we already wanted to do, but now we Really feel motivated to do it. Also I’m loving couponing, thanks to you again! It feels awesome knowing that I can make a difference with my familys finances, even though I’m at home with kids.
Jen
C. Couponer,
YES! Save while paying off your debt! All too often people forget that, so it’s a good thing you brought it up. When a unexpected bill comes up (which it always does -especially if you have a house, car or kids!), and you have to turn to CC to pay it, you are only incurring more debt. It’s better to have some money in savings to help cover those unexpected bills.
You will have to figure out what works for your family and what you are comfortable with. In our household we decided we’d have a savings account for unexpected expenses that goes no lower than $1,000 and no higher than $2,000. But it took us some time to get there. We have a seperate emergency account that is for true emergencies – loss of job or major medical expense – that currently has about 6 months of expenses. And then we have individual savings accounts that we put about $100-200/mo into for whatever we want.
So back to your question, YES!! Save money AND pay down debt at the same time! You will be surprised at how quickly your debt is elminiated AND how prepared you are the next time something unexpected comes up.
Renee R
I would recommend reading Dave Ramsey’s Total Money Makeover or any of his books.
Following his 7 steps to get out of debt, your first step would be to set up an emergency fund of $1000, that way if your car breaks down, heater goes out etc…, you won’t have to go more into debt to fix it. You should replenish your $1000 if you have to use it for an emergency fund as soon as possible.
Then start snowballing your debt (which you should hopefully have completed within 18-20 months), I think he says to start with you smallest debt first??? and work your way to largest.
Then finish your emergency fund which should cover 3-6 months of your expenses.
and continue on with the steps.
Hope this helps 🙂
Kim
I use a credit card for everything (I aquire points/cash back that way). I just write it down in my ckbook with a small abbreviation of the credit card beside it. At the end of the week, I add up those credit card totals and pay on the card. Never pay interest and make money for using the card. No different than writing a check except checks cost money and this doesn’t. P.S. Cars need brakes. It’s busy moms that need breaks. LOL
Holli
We have that many bank accounts as well. We also tried to use the cash envelope system, but it never worked for us because only one of us could have the money at a time. We found an app that called EEBA (easy envelope budgeting app) that has made all the difference. We can just enter anything we purchase in the app under the envelope it should come from, and then we never go over budget
Angela Salazar
Thanks for that! We have had the same problem with the envelope system. But that sounds like it would work! I will try it out!
Rebecca
I do a similar thing. I have 2 checking accounts and about 15 savings accounts. (That’s just for the personal size…I have other accounts for the business.) I have a different savings account for every major expense category I spend money on. School, mortgage, car, clothes, groceries, utilities, Christmas/gifts, emergencies, long term savings, etc. I put a set amount of each check into each savings account and then transfer it into checking or to my visa card as I spend it. It is so much easier to keep track of how much I have, and how much I can spend on different things, and I am really surprised at how quickly some of them build up.
Betty Jo
One of the reasons I love your blog so much is that you often mention and focus on your faith. I’ve been following this series of yours & I’m loving it! Thank you for mentioning and reminding folks to pay tithing (first) and to pay yourself! As we’re focusing on paying off debt or saving for a specific big ticket item, we forget to do both of those. When we tithe and pay ourselves, we definately benefit financially!
Thank you very, very much!
Angie
I take a different approach to my bank accounts. Instead of having a lot of accounts we basically have 3: 1 savings account with $1000 and 2 big interest checking accounts. Those accounts earn bigger interest than any accounts you will find anywhere right now. Basically you have to meet 4 criteria, but the only one I have to worry about is doing 12 transactions using my debit card on each account and I earn a lot of interest each month. I also have a cash rewards American Express that after my 12 transactions are met for my bank accounts I use the AMEX and pay it off every month so I haven’t paid any interest, but have earned a lot of cash back. I do my budget and track all of my transactions on Mint.com and it works out really great. We do have a Roth IRA through Scottrade that we fully fund each year and our HSA that we also fully fund with tax free money, plus our Roth 401K with employer match. I can track everything on Mint except the HSA and 401K. This system really only works if you are good at tracking things on a regular basis, and a good saver, not a major spender. We are completely debt free except for our house, and that will be paid off in a few years–we have paid it down 22% in only 2 years and paying it off will save us well over $150,000 in interest and then we will be able to rent this house and upgrade to a bigger house. We also bought a minivan with cash a few months ago and haven’t had a car payment in 5 years. We are also buying new furniture this weekend with cash. If you are willing to sacrifice and be frugal, life can be so much easier and less stressful!