6 Reasons Having One Savings Account Can Be Bad

Posted by Sanjaykale on August 18th, 2016

This isn’t exactly​ true​. I used to be the same way​ though – I had one checking account, one savings account, and thought that’s all you ever needed. Well, I recently stumbled upon a method to savings that I find absolutely awesome and wanted to share it.

If you only have one or two accounts, think about how many different goals or upcoming bills you are currently saving fo​r. ​My guess is ​you have more than one or two. Are you saving for an upcoming vacation, a yearly car insurance bill, money for a car you might need in the near future, an emergency fund, etc.?

Right now, I have 8 different savings accounts. Why on earth would someone need so many different accounts just for saving money and complicating their life even more?

Having one large sum of money set up to save for multiple goals leaves too much room for question marks. Based on personal experience, it also slows your saving tremendously, which then makes accomplishing your goals take even longer.

Here are six reasons why having one savings account = BAD.

1. You will forget how much you had saved for each goal

Let’s say you decided to set up a Roth IRA account. Most Roth IRA’s require a minimum ,000 investment just to open an account, so you start working on saving enough to open one up.

You just received a gift of 0 from a family member for the holidays, so you put it into your savings account with the idea that you’re saving for your Roth IRA. Then July rolls around and your insurance company sends you a bill. Without doing it on purpose, you might end up spending that 0 you had set aside on that bill. Congrats! You’ve just pushed your goals back another few months.

2. You’ll forget what you were even saving for

As a human, it’s quite difficult to remember every single thing we’d like to. “When did I pay that bill last? When is the mortgage bill due? What the heck was I saving this for??” We are pretty terrible at the whole memorization thing.

Having nothing to remind you of what you’re saving towards leaves a much greater chance that you will forget at least one of those things.

3. You think you’re saving more than you really are

Let’s say you are putting 0 each month into your savings account. That sounds great, right? But, when you’re saving money towards 5 different things, you’re only truly saving towards each goal. If one of your goals really was to save ,000 to open that Roth IRA, you wouldn’t have that goal completed until 60 paychecks had passed, or almost 2 1/2 years. Saving ,000 for a down payment on a house? You wouldn’t be moving into that house for over 15 years.

When you break down your goals into separate accounts, it’s much easier to see your progress and how far along you really are.

TIP: A lot of your goals have set deadlines, like the date a bill is due, or a specific time frame something needs to be completed by. In addition, many banks allow you to add nicknames for your savings accounts, and these nicknames can usually be pretty lengthy. Do you see where I’m going with this? Why not include the due date for that goal/bill part of the nickname of each savings account?

It includes the name of the bill, the amount needed and the date it’s due. This makes it very hard to forget what you set out to do. (EDITOR’S NOTE: Remember our post on financial triggers? :))

If you have the space, go ahead and add the amount you should be saving each month towards this goal, and you’ve just set yourself up very nicely towards reaching it.

4. While the large sum may be a lot of money, you might think you have extra money to spend

Having one large pile of cash can also give you a false sense of reality. Let’s say you have ,000 in your account and are feeling pretty good about your savings so far. Your good friend mentions the idea of this once in a lifetime trip they are going on and want you to come. “It’s only ,000! I have ,000 saved, I can totally go!”

If you had an “in your face” reminder of what you were dealing with, you would have realized that you needed to have ,000 saved by July, and can’t really afford the trip.

5. You don’t really know how close, or far, you are from achieving a goal

The total amount needed to reach your goals might be something like ,000. Yet when you have them all in one account, you don’t really know how far you are from achieving each goal. If you’ve never kept track of your savings before, (clearly, this doesn’t apply to the Budgets Are Sexy crew) you could look at your ,000 total savings account and think, “wow! I’m doing really well” – when in reality, you’re only 10% of the way towards reaching your goals.

You could end up getting comfortable with the amount of money you’re saving. Once that happens, it’s going to be much harder to increase your savings when you feel you are already doing well.

TIP: Are you a Mint user? You know that section called “Goals” where you can set a goal and see how close/far you are from reaching that goal? I always had these budgets set up but they were linked to accounts that had more than one hypothetical goal attached.

Having these separate accounts makes it SUPER easy to utilize this feature to it’s full potential. Since you now have an account set up for each goal, you can link that account with the goal and accurately track how much longer it is until you reach that goal. AWESOME.

6. You won’t put yourself in a last minute crunch

Ever forget about a sizable expense until the bill came, and then made yourself crazy trying to figure out how in the world you were going to come up with the money? With this system you won’t have to worry because you already know that you had planned for that expense. It saves yourself the headache and from maxing out your credit card in one shot.

But am I allowed to do this?

Many banks allow you to have multiple savings accounts without any additional charges. Double-check that your bank functions the same way. Some banks do have minimum deposits, which is a crappy practice but it happens, so CYA and give them a call.

What if my goals change?

The nicknames on your account can be altered at any time, so if your goals change you can just log in and have everything updated in no time.

I found that having one big pot of money is just way too confusing. Having multiple savings accounts has saved me time, hassle, and kept me from many of those hectic situations.

Source: http://www.budgetsaresexy.com/2015/05/6-reasons-having-one-savings-account-can-be-bad/