I’ve written a little bit about savings accounts before. We are starting to branch out our savings and investment strategy, and I thought it would be a good time to write about how we manage our everyday, primary-use savings account!
How we use our main savings account
Our primary savings account that we access regularly holds money for a variety of things, but it has three primary uses.
1) Emergency fund
This account is our first-line emergency fund. Obviously, you need to have an emergency fund you can access quickly. An emergency fund should be several months of expenses that is in a accessible form (so, not locked up in a 401K).
Read everything you need to know about emergency funds here.
We decided that we wanted to have two months of savings that was completely liquid, and that amount stays in our main savings account. We are getting ready to move our “emergency fund” savings beyond that into the stock market, where we can liquidate them if we need, but it may take more time to do so.
2) Amortized expenses
We also put amortized expenses in this fund for things that are small. I wrote about amortizing yearly expenses here and I cannot recommend it enough. We amortize any and all yearly costs, including amazon prime, our Costco and Sams Club memberships, insurance premiums, and our Christmas savings. All those monthly payments get put in our main savings account so we can pull out the lump sum when the actual payment is due.
3) Growing funds for investments
If we are planning a larger investment, we will start building the funds in our savings. This may mean chunks of money that are destined for our Roth IRA, or setting extra cash aside while we decide what to do with it. For example, our tax return is sitting in there right now while we come up with a strategy for saving a down-payment for a house.
Get the best value
I’ve already sung the praises of high-interest savings accounts, and our main savings account is a high-interest account that is separate from our main checking account. We love it because we see higher dividends than we get from our bank savings account. It’s still a fraction of what you can earn on the market, but we need that money to be there regardless of market performance. High interest accounts are a low-risk, (slightly) higher-return place to leave your money.
We usually see a few extra dollars each month in dividends, sometimes a lot of extra dollars each month if we left a big chunk in there. Even $10 is money that our money earned for us, just by sitting there.
In addition, being separate from our checking account means we aren’t constantly trying to use that money to pay for monthly expenses. We believe in living below our means, so we make our monthly expenses fit the amount we are actually earning each month.
For our family, high-interest savings has been an asset and helped us make better use of our savings. That said, there comes a point when 2% interest isn’t enough. Now that we have our emergency fund fully funded after recovering from a bad financial year, we are starting to explore moving the bulk of our savings beyond two months expenses into the stock market. There, the money will get us a better return.
How to you keep track of your savings if it’s all in one account?
I’m sure you noticed that our savings account has a LOT of different funds in it. We manage this by tracking our money in excel.
While all the money is physically in one account, we keep an savings account tab in our family budget where I log the amounts we have for each category in our account.
I track withdraws and deposits from each “account” in that savings account, and then have a formula that calculates the total to make sure our activity lines up with the actual amount in the account.
We have “accounts” on that tab for several categories, including the following:
- Store memberships (Costco and Sams Club)
- Insurance premiums (life, car, and rental insurance)
- Subscriptions (Amazon prime)
- Taxes (We both do a little work on the side, so we make sure to pull out and save tax money in case we owe)
- Emergency fund
- Other (For example, right now our “other” account is holding our monthly savings towards a house down payment)
I like to have my savings broken up this way, that way I can see at a glance how much we have designated in each category.
Why bother tracking?
We track each type of savings for one simple reason: if you don’t know what you have saved, how can you use it? I am a meticulous budgeter, and I like to account for ever. single. penny. If we have money set aside to pay for amazon prime, I don’t want to use money from that “account” to pay our life insurance premiums! I like to have everything organized.
The other benefit of having each amount accounted for is clarity. I don’t have to try and figure out how much we’ve saved for travel – I have it logged right there in my budget. If we have an insurance premium coming up, I can glance at my savings page and make sure we have enough set aside to cover it. Easy!
Why not open separate savings accounts?
There are people who like to have a separate savings account for everthing. I don’t, for two reasons.
It’s a ridiculous amount of accounts to manage.
Honestly, that’s too many passwords. Even if you have them all under the same bank and account, consider point number 2 –
You get smaller dividends on smaller amounts.
Given all the categories we have lumped into this one account, the amount in there can add up quickly. Since it’s a large sum, we see a good amount of dividends on our high-interest account.
We could open multiple high-interest accounts, and maybe someday we will break off some of these savings categories into their own account. But for now, we are keeping it simple. For me personally, it’s easier to track the funds in excel than it is to deal with eight different savings accounts.
Maybe my savings management method comes across as a little insane and complicated. It’s developed after years of living through very low income, including my husband’s years in law school and subsequent unemployment. I have found that we are best able to function when we have our money designated in an intentional way, and breaking down our savings is another facet of our careful budgeting. Hopefully you found some helpful info in there!
How do you manage your savings? Tell me in the comments or leave me a tweet!
If you feel like you can’t get your savings started, I have a few tips! I wrote about jump-starting your savings with Swagbucks here and decreasing you grocery costs here! I also wrote a detailed article about our micro-budget method to show you how we live off the absolute minimum each month. Good luck!