The 4 Bank Accounts You Need to Have
Banking used to be simple. You might have a checking account and a savings account. However as our financial lives get more complicated, it can be beneficial to actually have a few different accounts. This can help you better manage your money and meet your goals.
Bills Account (Checking)
You should have two checking accounts. The first one will be your bills account. This is the one where you’ll pay all of your recurring expenses out of. This might include rent, utilities, debt payments, and insurance.
To use this account, total up all of your recurring expenses and divide the total by the number of times each month you are paid. Each time you get paid, you’ll transfer this amount of your income into your bills account. When your bills come due, the money is there and you won’t have to worry about not having it.
Spending Account (Checking)
Your spending account will be where all of your day to day purchases come from. Ideally, your income will be deposited into this account. Whatever is left after your transfer to your bills account is what you can spend.
Any time you need to get cash, buy dinner, or spend on anything else, you’ll take the money out of this account.
If you use your credit card for all of your day to day purchases like I do, your credit card bill should be paid out of this account as well. Remember to never charge more on your credit card than there is in your spending account and you can pay your credit card bill more than once a month.
Emergency Fund (Savings)
Everyone should have an emergency fund. It is recommended that you keep at least 3-6 months’ worth of expenses in a savings account that is easy to access if needed. Your emergency fund can be at your primary bank or at another one.
If you are an entrepreneur or freelancer, your emergency fund should be larger. You are at more risk of needing the funds, so we recommend 6-12 months instead.
Long Term Savings (Savings)
I’m sure there is something you want to save for. It could be a trip, a new computer – whatever you want. This is the account where you’ll set that money aside. Determine how much you want to save every month and transfer that amount in to this account.
Extra:
Credit Card
Credit cards are not a typical bank account, though you can open one with a bank. The money is not yours; you borrow it, then have to pay it back. If you don’t pay the card back by a certain time, you’ll have to tack interest on there too.
Although credit cards may seem a little daunting, they provide a lot of benefits, especially for travelers. If you manage your card correctly, it could be better to use the credit card for the majority of your purchases. Investigate what your options are and make sure to look into a rewards card.
Retirement Account
Your retirement account probably won’t be at a traditional bank. But it is something everyone should have. You’ll have a few options depending on your work situation including 401K, IRA, and self-employed plans. Take the time to figure out the best option for you, then actually save. Over time, the power of compounding will work wonders and allow you to grow your nest egg very large.
