The Seven Bank Accounts Every Family Should Have

When you file important papers, you most likely put them in multiple folders to compartmentalize, organize, and help you keep track of the things you need. So why would you toss all your money into one big bank account?  Most families have one savings account and one checking account. And while it works well for many, I’ve found that having only one or two bank accounts can make it harder to keep track of your money.

I suggest you consider opening seven bank accounts, which will help you organize your money and save your family thousands. And no, you don’t have to have lots of money to start. In fact, we were living paycheck to paycheck when we began using this system and were in the red most months.

First things first: the biggest question I get is, “Doesn’t having lots of accounts hurt my credit, cost me extra, and make life more complicated for me?” The simple answer is no. Or, it shouldn’t, anyway. It won’t hurt your credit unless you get into debt or don’t pay your bills on time. And believe it or not, as confusing as it looks on paper, if you commit to the system, get organized, and take the time to do it right, it will actually simplify your life. If it costs you money to open an account, change banks. In fact, many banks will pay you to open an account with them!

Before I break down the seven accounts in detail, first a probing question…

How do you track seven different accounts?

If all of your accounts are with the same bank, then your online bank dashboard will have all your accounts handy in one place.  If your accounts are all open with different banks, you can use Mint.com, which is a free service that pulls information from all your banks and presents them on a single dashboard. They have a fantastic mobile app, and you can even pay bills from Mint. All in all, if you’re willing to use a computer and phone to do your banking rather than a pen and paper, this method will save you time and money.

Now, here’s a further breakdown of the seven accounts, or if you would like, you can watch the video summary HERE.

1. Family Emergency Savings

Twenty percent of your income should automatically go into savings each month, and this is the ultimate account for your savings. As a rule, this account is for absolute, dire “we are going to lose our house next week if we don’t do something” emergencies. Picture it as the fireproof apocalyptic vault hiding behind concrete walls in your basement, or the piggy bank you have to shatter to open. You should never touch this account unless it is your absolute last resort! And it should never be for anything that can be resolved in other ways, including paying off debt. Having 6-12 months to live off of is more important than any credit card payment you could ever make! Hopefully you will never have to touch this account…but it will be a good thing if you ever need to.

Rules and tips:

• Savings money should be automatically withdrawn from your paycheck every month (20% ideally) and deposited into this account. You should pretend that this money doesn’t exist when considering your income/budgets.

• It needs to be an “out of sight, out of mind” account. Don’t even bring it up when calculating your money as a family, and NEVER consider it as an option for pulling money out of when needing to pay for something, unless it’s a literal life-or-death situation.

• You can open this in any savings account, but I recommend opening this account through an online bank like Capital One 360 or E*Trade (HERE are lots of great options) because they are harder to withdraw money from, and it is easier to keep the money “out of sight”.

How much to have in this account:

• You should have enough to live on for 6-12 months (12 is your goal, but don’t stop until you hit at least 6).

• You should aim to put 20% of your earnings into savings every month. When starting out, put 10% into this emergency account, and 10% into your family regular savings account (see next section) until that account is built up to three months of living expenses. Then go back to putting all 20% into this account.

By having a Family Emergency Savings account that A) you automatically draft money to each month, and B) you NEVER pull money out of, you can effortlessly protect your family from the worst-of-the-worst circumstances.

2. Family Regular Savings

(Editors note: This is updated since the original post and now conflicts with the TV segment video slightly.)

This is your “holding tank” account; the savings account that you can tap into when needed. This account is used to hold three months’ worth of cash to live off of at all times in case of a short-term emergency. It’s mainly used to hold money you are using to save up for something pre-planned (down payment on a house, new bedroom furniture, major home repairs, family vacation, new car, upcoming wedding, etc.), and to pay for unexpected expenses and emergencies (car repairs, new tires, unexpected home repair, etc.).

Rules and tips:

• Automatically draft 10% from your paychecks to this account every month until the three months of cash is saved up, with the other 10% going to your Family Emergency Savings (as explained above).

• Once three months of cash is reached, you should stop automatic deposits from your paycheck into this account, and only deposit leftover money at the end of the month. If you need more money in this account, you’re going to have to cut back on your spending throughout the month! This savings account can be at your normal bank. Try to find a bank that will pay you to open a savings account! You can get paid as much as $75-$150+; just read the fine print to make sure there are no hidden fees.

• You need to have a plan for the money in this account. Don’t get in the habit of pulling money out of this account regularly–it needs to be for big purchases that require advance planning or for emergencies only.

How much to have in this account:

• Since this account is used to save up for big expenses, the total amount in this account will ebb and flow. However…

• As a rule, always keep a balance of three months’ living expenses in this account, so you can live off of it if needed for a short time before having to tap into your emergency savings.

• When using this account to pay for a big purchase, make sure to save up the full amount before buying.

By having a Family Regular Savings account you have a “holding tank” delegated to help you save up for anticipated expenses, help you pay for unexpected expenses, and protect your family in case you need to live off of savings for a short time.

3. Family Checking

This is your “home base” account, the account where all paychecks and other sources of income go initially. Your money starts here, then is transferred and allocated to other accounts. This is where you pay for minor car/home repairs, oil changes, utilities, all other bills (except for medical bills; more about this below), donations, and other “family” expenses.

Rules and tips:

• All bills are paid from this account, preferably on auto-pay when possible to avoid late fees.

• Set up auto-transfers to other accounts to streamline the process of sending your money where it needs to go.

• Once all your money has been deposited into this account and sent to where it needs to go, it will be easy to see if you have money leftover at the end of the month. Any money leftover in this account should go to Family Regular Savings. If you have three months’ living saved up in that account, have no debt, and don’t need to save up for a big expense, put half of the leftover money into your Slush Fund (below) and the other half into your Family Regular Savings.

How much to have in this account:

• You should have enough in this account to cover your expenses for the month, trying not to have much leftover. Any excess money needs to go to pay off debt first, then back to your savings accounts once your debt is paid off. If it sits in your checking account, you will most likely spend it!

• Make sure you have enough in your account that you don’t ever overdraw. The best way to figure out how much you need is to look at your spending habits from the last six months. Total up how much you spent every month, minus major emergencies (because that would come from your Family REGULAR Savings – see above). Average it out and start from there. (See how to easily track your monthly budget and find good budget parameters HERE.)

• Be sure to keep your bank’s required minimum amount in this account at all times. Read the fine-print with your bank to make sure you don’t get slapped with any fees for not keeping a certain minimum amount in that account.

By having a Family Checking Account as your “home base” account, it makes it easy to send your money to their individual “jobs” (AKA other accounts) and makes it simple to see how much money you have leftover (or how much you are short) at the end of the month.

4 & 5. Husband’s and Wife’s Checking Accounts

The monthly budget for each of these accounts is transferred from the Family Checking Account (see above) to these accounts every month. By having Husband Checking and Wife Checking accounts, each spouse has autonomy to spend however they see fit while still being held accountable for the overall budget amount. It motivates them to be frugal where possible, helps allocate spending responsibilities for a family, and makes “who is in charge of what” clear and concise…which leads to less fights about money!

Rules and Tips:

• You should use this money to cover your budgeted expenses for the month, which needs to be determined in advance by each individual family. (See tips on this HERE).

• Sit down and write out every single thing you spend money on, then divide up responsibilities! If you do the cooking, you should buy the groceries because you know what you need. If your husband is the car genius, he should be in charge of paying for car repairs. Whatever you’re good at and handle regularly, that’s what you should be in charge of. Once the money has been deposited into the your account, you spend the money however you see fit, ensuring you cover all of your responsibilities.

• If you run out of money before the end of the month because of poor budgeting, you need to tighten up and go without until your budget starts over the next month. If you run out consistently, consider revamping the budget slightly to give sufficient money to cover all budgeted expenses reasonably…but dig deep to see if it’s spending habits or budget amount that are the real problem.

• If you have leftover money, rather than spend it you should contribute to your Slush Fund (see below)! Trust me, you’ll be happy you did.

• The money for this account should NOT include “family” expenses such as utility bills, home and car repairs, medical expenses, and large expenses like braces, new furniture, etc. These expenses should be put on auto-pay from the Family Checking account, should come out of the Family REGULAR savings when needed, or from the medical HSA account (see below).

• The money you spend for the month – whether you use cash, debit card, or credit card – all comes out of this account. If you pay for things with a credit card, pay off the card using the money from this account BEFORE you’re slapped with any interest fees. If you use cash, divide your budget up weekly (rather than monthly) and pull out exactly what you need each week to pace yourself. See more on this HERE.

• Whatever is left over is your fun money! This rewards you for being frugal.

How much to have in this account:

• This ultimately depends on your individual family situation! But in general, just enough to cover your financial responsibilities for the month.

6. HSA (Health Savings Account)

An HSA is a tax-free savings account built specifically to hold money to pay for any kind of medically-related expense, large or small. Basically it’s like a normal savings account with a debit card and everything, except this debit card can only be used at pharmacies, doctors’ offices, chiropractors’ office, hospitals, and other approved medical facilities. It’s a perfect way to set money aside for medical costs so it doesn’t eat into your savings and doesn’t have to come out of your wife/husband budgets.

Rules and Tips:

• You can go to this site to fully educate yourself on how these work.

• HSAs work best with more affordable, high-deductible accounts.

• Why use an HSA instead of a standard savings account? Any money deposited into an HSA is tax-free. For those who need a few thousand dollars a year (or more) to cover their family medical costs, this tax savings can be substantial.

• MAKE SURE to read the fine-print. Some HSA’s are “use it or lose it” accounts, or have fees attached. Both of these things are unnecessary.

How much to have in this account:

• You should have enough to cover all perceived medical expenses for your family for the year, without depositing too much extra. Obviously this will vary from family to family. Look at your medical bills for the last year or two and use that as a place to start. Deposit what you can afford each month.

Having a Health Savings Account will ensure you have sufficient funds to pay for medical expenses. It prevents you from having to dip into the Family Regular Savings account to pay off medical bills and is a great solution for affordable healthcare. It helps you plan and prepare for expected and unexpected medical expenses, allows you to 7only pay for the healthcare you use and need, all while giving you tax-free savings.

7. “Slush Fund”

Optional seventh account. Think of this as your spare change jar. This is the account where all extras go. If, at the end of the month, your debt bills are paid, your 20% has gone into savings, all accounts are accounted for, and you still have extra, toss it in here, and this is your 100% FUN MONEY account! This money does NOT go toward bills or mundane things in any way. Once your debt is paid off and your savings is under control, this account is your reward for spending wisely.

 

Rules and Tips:

• You need a plan for this money. It could be for a new TV, vacation, a trampoline, or something else fun that your budget might not allow for otherwise.

• Get your family involved in this goal. Have it be a community fund where any extra money gets contributed toward a common, exciting goal. Make a chart for your fridge, or put pennies in a jar to represent every dollar put in the account. Make it visual, fun, and exciting for the family.

• Sadly, you really should only put money toward a slush fund once your debt is paid off (except your house) and have 6-12 months to live off between your two savings accounts. But hang in there, take care of your family first, and the fun “extra” money will come soon enough!

How much to have in this account:

• This depends on how conservative you are with your spending! This account only holds EXTRA, unspent funds, so the less you spend throughout the month, the more you will have in this account.

• This account may build up very slowly. It may be as simple as $10 leftover in a grocery budget from the week, or $100 of a tax return that wasn’t needed for other accounts, or leftover birthday money that a child wants to contribute.
• Setting a goal for this money is key, so it doesn’t burn a hole in your pocket too early!

Having a Slush Fund Account encourages a united excitement for spending wisely as a family. It gives everyone a common goal to work for and allows for a family to spend money on something 100% fun that they might not be able to spend money on otherwise. It encourages saving, budgeting, and delayed gratification.

 

Technically, the list of accounts could go to eight and beyond. If you have kids, I suggest also opening…

8+. Kids’ Savings and Checking Accounts

For every child you have, I propose opening up their own checking account and savings account. From Day 1 you could be drafting a few dollars a year (or however much you can spare) into their savings account, helping them to save up for college, their future wedding, a religious mission, etc. It’s also a great place to deposit their birthday money into it when they’re too young to really use or care for money yet.

Once they are old enough to make their own money (allowance, work, babysitting…) you should encourage them to put at least 1/2 into savings and to put the rest into a checking account. Teach them to write checks, use a debit card, the whole nine yards! Yes, even an eight-year-old can understand these concepts if you teach them well enough.

Start your kids off on the right foot by teaching them to be financially wise, secure, and comfortable with finances in the real world.

So, there you go!

 

QUESTION: What has helped you organize your finances?

CHALLENGE:  Rather than tossing all of your money into one savings and one checking account, try opening these seven (or more) accounts. It may be just the step your family needs to get your budgeting and spending on track!

Want to learn more?  Check out this podcast with April & Jordan.
Also, click HERE to read Jordan’s original post.

 

Edited by Sarah Monson.
Images within post from FreeDigitalPhotos.net.  Click on images to see credits.
Feature image from Shutterstock, with graphics by Julie Finlayson.

 

 

About Jordan Page

After going through tough financial times, Jordan Page found the secrets to managing family finances - the SIMPLE way! They paid off over $15,000 in credit card debt in just one year (while only making $32,000) and now live in a million-dollar home they got for pennies on the dollar. Her innovative money management systems and frugal living tips have reshaped the lives of hundreds of thousands of families all over the globe. She has shared her tips on the Today Show, Inside Edition, TLC, Today Australia, YOU Magazine, the Daily Mail, and more. Aside from her blog and annual frugal living conference ( Frugality Boot Camp ) , she is also the inventor of The Bomb Shelter full-coverage nursing cover ( Bomb Shelter Baby ) and busy mom to 4 kids, 5 and under. She lives with her entrepreneur husband and overweight yellow lab in Utah.