How to Budget Using Multiple Accounts

Benefits of Using Multiple Bank Accounts for Budgeting

Having a spending plan in place is key for maintaining control of your cash flow. But budgets aren't one-size-fits-all, and the key is finding a system that works for you. For some, creating separate checking accounts and savings accounts can make budgeting easier to stick with. Here's how.

• It helps to keep funds separate. By keeping funds for expenses and funds for discretionary spending separate, you can easily determine when you can afford to splurge and when you can't. You can also avoid mixing up your emergency savings with savings you plan to spend on purchases or travel.
• You can see your progress toward goals. Using multiple bank accounts for different goals can help you see your saving efforts pay off before your eyes. For example, if you are regularly funding an emergency savings account, a house down payment savings fund and a wedding savings fund, you can see your progress toward each goal in your different account balances.
• It's compatible with other budget plans. Some people like using multiple bank accounts to budget because it helps them eyeball their spending and determine if they're within their spending limits or not (without crunching the numbers). But if you prefer a more structured approach to budgeting, you can use multiple accounts alongside systems like the 50/30/20 budget plan, envelope budgeting or zero-based budgeting.
• You can take advantage of new bank account bonuses. If you create sinking funds for each of your major savings goals, you'll have the opportunity to shop around for the best interest rates and new savings account bonuses when you create a new account.

How Many Bank Accounts Should I Have?

To effectively budget using multiple accounts, you should find a method that works well for you personally. For example, some people like to pay all their fixed bills, such as rent, internet and phone, out of one account while paying variable expenses like groceries and electricity from another. Other people like to keep all their money for essentials in one checking account and "fun money" in another.

Here's an example of how to separate money in bank accounts.

• Bills checking account: It can be useful to have one checking account dedicated to paying your monthly bills and other expenses, such as basic groceries and transportation costs.
• Spending checking account: You can route a sum of money each month into a dedicated discretionary spending account. Then, when you're evaluating whether you can afford to splurge on a retail buy, go out for dinner or go to the movies, for example, you can check much you have in discretionary funds.
• Emergency fund savings account: It's a smart financial move to keep some money in a dedicated emergency savings account. The best place to stash this money is somewhere liquid so that you can access your money quickly if you need it. A high-yield savings account is one common option.
• Other savings accounts: Beyond your emergency savings account, you can set up separate savings accounts to fund different goals. For instance, you could create a down payment savings fund, vacation fund and a furniture and appliance fund.

As with any budgeting method, it helps to look at how you're already spending money before you try to implement new structures. Look back through your transaction history and group spending into categories that make sense to you, such as discretionary versus non-discretionary, or fixed expenses versus variable expenses. Then organize your income into funds that match your preferences.

How to Manage Multiple Bank Accounts

Keeping track of your spending and balances in multiple bank accounts can be tricky. The best approach is to take things slowly and ensure you're not overwhelming yourself with too much to keep track of.

1. Fund your accounts. You'll need one main checking account where you receive direct deposits and divvy up funds for your other accounts. You can also see if your employer allows you to split up your direct deposit so that each payday your paycheck funnels a set amount of funds into each account.
2. Link your accounts to a budgeting app. To track your net worth and spending across multiple accounts, consider using a budgeting app that allows you to import balances and transactions from multiple accounts, such as Mint or You Need a Budget.
3. Check your accounts regularly. Whether you set up a payday routine to look over your spending and make sure you're on track or you prefer to check each of your balances daily, make sure you're scheduling regular time to look over your balances, check for unusual transactions and ensure you have enough cash for upcoming bills. That can help you avoid overdrafting any of your accounts.
4. Adjust as necessary. When you have a change in income or expenses, readjust your account deposits to create a new spending plan. Or, when you meet one of your savings goals, you can designate a new purpose for that account and continue to fund it.

The Bottom Line

Using multiple bank accounts to separate funds into different categories can help you keep your spending and saving organized. In addition to using multiple bank accounts to budget, you could consider adding a credit card to the mix. Some people like to use a rewards credit card for everyday spending to earn cash back or points.

For example, you could use a grocery store rewards credit card or a gas cash back card to get more out of the spending you already do. To make sure this strategy is financially beneficial, rather than costly, it's important to pay off your full balance before the end of the grace period. That way, you'll earn rewards without paying interest.