When dealing with issues in reaching your financial goals, you may have blamed your failure on not making enough income. In reality, while that does have a big effect, the best way to maximize your current income position to reach realistic goals is by knowing how to save money.
Saving for the future lets you aim to purchase something you've always wanted, with a suitable plan to reach that point. One of the foolproof methods for saving well is by opening a savings account.
Now the question is: how many savings accounts should I have?
In this article, we will discuss the importance of savings accounts and why you need more than one.
Are savings accounts really that useful? And if so, why do I need to have multiple savings accounts?
Savings accounts are beneficial because of several reasons. The first is that they act as suitable places to store your emergency funds. No matter how good you are at regulating your spending, there may be moments where you will need to spend more than you would have on a weekly basis.
Furthermore, they can protect your finances from fraud or from going missing. Keeping your savings under a pillow at home means you will have to live with a constant fear that your life's work will get stolen. This is a lot less likely to happen if you store your money in a financial institution.
They also improve your ability to budget. Having a savings account will allow you to keep track of how much you are setting aside, and this can help you keep disciplined in reaching your monthly goals.
People will often use multiple savings accounts when they want to allocate different budgets for different financial goals. For instance, if you are saving up for both a car and a luxury vacation, having different accounts for these purposes will allow you to have a greater understanding of what you are pursuing.
So how many savings accounts should I have? The answer will vary from person-to-person because it depends on how many personal goals you have.
If you are saving for a car, a vacation, a house, and a restaurant chain, you will have a greater need for more savings accounts than someone who is only planning to buy a car.
Typically, people will have separate savings accounts for the following reasons:
The reasons why a person will need a savings account will differ based on their personal needs and what point of life they are in. But at the very minimum, people should aim to have 2 savings accounts open. This enables them both to have an emergency fund and to save money for future goals.
You may not think it's worth the hassle to have multiple savings accounts. But being able to divide your accounts based on your goals is actually a great way to improve your saving habits. These are some of the reasons why you should have multiple savings accounts.
One of the best things about having multiple accounts instead of just one savings account is that you can directly track your progress in comparison to the financial goals that you have. Otherwise, you may lose track of the different things you're saving for and end up using the account for fewer plans.
For instance, if you only have one account but are trying to save for emergency use, a car, and a house, you may end up spending more on your house than you first envisioned. This will put a dent in your ability to spend either on the car or for emergency scenarios.
The temptation to overshoot and spend too much on one goal will damage your ability to spend on everything else.
If you see only one saving account with a huge balance, you may be tempted to spend it, which you can do easily because everything is online now. Instead of placing a focus on your different goals, you will simply see a lot of money sitting idly, and you may find it better to splurge on something now instead of on something in the far future.
Having multiple savings accounts can also discourage misspending if you open accounts in different banks. You won't see all your balances on one screen, and the temptation to spend more as a result of the combined balances will be less.
Another reason why having multiple savings accounts can enhance your financial future is they have an automated function.
Whatever your primary account balance is, you can make an automatic transfer to your different savings accounts so that you don't get tempted to spend. This will also ensure that you allocate a fair amount of money each month to each savings goal.
A benefit of dividing your savings based on what you want to spend them on will allow you to have a clearer image of how well you're doing. If you are doing well, you know that your current budgeting plan is working for you.
If you are not, however, you can evaluate your budgeting according to this knowledge. For example, maybe you are saving quite well. But when you see them divided across the different accounts, you are unlikely to reach your goals soon.
By putting your money in a savings account, you can access insurance from the Federal Deposit Insurance Corporation (FDIC). The FDIC, however, only offers insurance for up to $250,000 in a single savings account.
If you have more than that amount in your account, it will be beneficial to open multiple savings accounts so that your money will always receive insurance coverage.
A drawback of having a lot of saving accounts is that you may find yourself growing overwhelmed about managing the accounts. If you have all of those savings accounts under one financial institution, this may be easier to organize.
However, if you already have quite a few, it is likely that you may choose to open savings accounts with different banks to benefit from different perks, such as higher interest rates.
Make sure to keep track of your multiple savings accounts, perhaps by having a spreadsheet or by doing a monthly review of everything at once. This helps you understand how well you are doing compared to your goal, and keeps you accountable to keep saving for that specific dream.
You should also make sure to note what fees you are paying for the accounts, what interest rates you receive, and more.
It's worth noting that there is a sacrifice involved in having multiple savings accounts. You need to improve your organizational skills and sometimes, it's time-consuming to manage so many different accounts. It is also, however, one of the best ways you can make sure you meet all of your savings goals.
No, opening multiple savings accounts will not hurt your credit score!
A credit score reflects your history with making credit payments and with your credit accounts, which does not include how well you save up in your accounts. Because of this, there is no real hindrance to opening multiple savings accounts, except by your own preference.
Anyone who is beginning to have bigger plans for their financial future will start wondering 'how many savings accounts should I have.' And the answer is that it completely depends on you. Open savings accounts based on your personal goals and your own savings needs.
At the same time, having multiple savings accounts when you have different goals helps you stay focused and track your progress well. This will ensure you reach your goals and budget your day-to-day spending better.
Register an account with Yotta today to start saving better.