Strategies for Giving Every Dollar You Earn a "Job."
Bank accounts can have specific uses, and strategically implementing some “jobs” for your accounts can make managing your money more palatable.
In order to get started, it is important that you understand various types of bank accounts.
Here are some basic bank account types and terms:
- Basic Checking Account: these checking accounts are offered by all major banks and offer the customer convenience through services like direct deposit, bill paying services and online transfers between accounts.
- Standard Savings Account: this basic savings account offers a place to park your short-term savings. These generally pay the customer a very low interest rate.
- High Yield Savings Account: these savings accounts are usually offered through online bank accounts. The bank pays substantially higher interest rates than a Standard Savings account, as the bank doesn’t have the same overhead expenses as the brick and mortar banks. In addition to higher interest rates, these accounts also offer the convenience of online transfers within their bank and to accounts you may have at other banks. This type of account is ideal for longer-term savings.
- Money Market Deposit Account: can be used for your emergency fund. The minimum balance required will often be higher than required for a savings account. These accounts typically pay a higher interest rate than a savings account. Check writing privileges are available, but limited withdrawals are permitted each month.
The best way to utilize your accounts is to set up your accounts according to how you want to manage your cash flow.
Here is an example of how to give every account a responsibility in making your monthly “to-dos” easier.
You could establish your bank accounts like this:
- Checking account #1: This will be your “Master Account,” from which you will pay your fixed bills and fund your remaining accounts. All income is deposited into this account. Once you have determined the total dollar amount of your fixed bills (the ones like your mortgage and car payment), you may want to consider establishing autopay for these recurring bills. You will take the remainder and deposit it in to.... ⬇
- Checking account #2: Establish this account for your “Daily Spending.” This area of spending is for items like groceries, gas for your car, and dining out. Having a separate account with a debit card for this portion of your spending will help you to not overspend from your Master Account.
- Savings account #1: Deposit money regularly into a savings account to cover your random bills like annual subscriptions, quarterly bills, and semiannual bills. Putting a monthly amount away to cover these bills will be appreciated when you can transfer funds into your Master account as these bills come due.
- Savings Account #2: Short Term Savings: depositing a regular amount into a short- term savings account that is earmarked for emergencies is a foundational step in building financial confidence. The goal is to have three months -worth of ALL of your expenses saved. It’s even better to save six months -worth of expenses in this fund. This can be in a Standard Savings account, but you may want to consider a High Yield Savings account for this purpose.
- Long Term Savings Account: This account can be used for expenditures like travel and home improvements. We recommend that these funds are in a high Yield account to earn as much interest as possible.
It may take some detective work to calculate how much you need to deposit into each account every month.
In the long run, you will have given every dollar that you earn a job, and the means by which you can rest assured that you are building a life of confidence and security with your money.
Design Your Personal Saving and Spending Plan
If you have ever tried to “budget” and find yourself feeling confused, frustrated and overwhelmed, you are not alone! Most of the traditional budgets that we try to use approach the process like a corporation, not how you live.
At Money Mentor Group, we know there is a better way, and we want to share it with you!