I have a bunch of savings accounts all earmarked for different things.
I have my emergency fund for actual we-can’t-put food-on-the-table emergencies. Then we have our cushion fund to smooth out our irregular income. There is also a savings account where we make car payments to ourselves to save up for new cars. And a savings account where we put income from the rental to pay for maintenance as needed. Oh, then there is an account for vacations. And one for each of the kids.
Why? I normally like to keep things simple and having so many accounts to keep track of sure isn’t simple. It would be easier to just have one account to pool all our savings and just pull out as needed. Yes, it would be easier, but would it be better?
The reason I’m a fan of having separate savings accounts is because it keeps the individual balances lower. It’s a psychological thing. If I pulled up the account balance and saw that I had, say $50,000 in savings (for example), that would make me feel pretty good. I might in fact decide that it would be ok to splurge a little on vacation this year. Or maybe
get a bigger cable package (update: we cut the cable!), or more lavish cell phone plan (Update #2: We’re switching to Republic Wireless!). No matter what that fat account balance would do to me, it wouldn’t motivate me to save more. I know myself. I’d see all those zeros and feel pretty set. I’d forget all the things that money is supposed to provide. It’s supposed to provide for my family if my husband loses his job. It’s supposed to buy me two new cars and take us on vacation. It’s supposed to cover all the expenses for the rental property.
So instead I break it up into lots of smaller accounts. Now when I pull up my savings accounts I don’t see one big balance, I see lots of little balances. None of which are big enough to provide what they are supposed to provide. Eeek… that’s not enough to buy a new car, I need to save more! Yipes… that’s not enough to cover us if my husband loses his job, I need to save more! Oh… that’s not enough for a vacation, I’d better tuck away a little more.
You see? Little balances motivate savings in a way that big balances do not.
How do you handle your savings?