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This is part 2 in our 3-part series on Multiple Savings Accounts. Click here to access Part 1. Below we are providing you with a practical, step-by-step breakdown of how you can implement the use of multiple savings accounts in your budget.....
STEP 1: Identify large recurring expenses
Some common ones are insurance premiums, property taxes, vacations, and car registrations. You may also want to include fun stuff like vacations, home upgrades, etc.
STEP 2: Figure out your monthly costs
Divide the amount of each annual expense by 12 to figure out how much money you should be setting aside every month to cover those bills. For example, if your home insurance is $600, your monthly payment would be $50.
STEP 3: Choose your bank
Find a bank that allows an unlimited number of online savings accounts. You want to avoid banks with monthly account fees. Also make sure you don’t have minimum balance requirements or limits on the amount of free transfers between accounts.
STEP 4: Open your accounts
Don't open just one account: It's too easy to lose track of how much money you've allocated toward each expense. Open a separate account for each goal listed in Step 1 above. Most banks will even let you give the separate accounts nicknames, such as “Vacation Fund”.
STEP 5: Fund your accounts monthly
Make sure you implement a system to transfer funds to each of these accounts from your paycheck. You can even setup automatic transfers if you want. (Just make sure it fits within your budget!)
STEP 6: Voila!
When your pre-planned expenses come up, all you need to do is take care of that expense using the corresponding savings account.
Multiple Savings Accounts make budgeting much easier as you essentially take care of all expenses monthly. No surprises like Christmas, which occurs every year in December! For more on this fun topic, read our article titled “Changing The Day Of Christmas”
** Remember that expenses can change from year to year. So you should recalculate your monthly payments at least once a year.
Stay tuned for our final posting regarding “Multiple Savings Accounts”. This last article will give you ideas of what items you should be including in your multiple savings accounts.