Thursday, September 12, 2013

Why I have multiple savings accounts

It might surprise some that not only do I have multiple savings accounts but I am actively looking to open more. What's the big deal? Just set aside some money for a rainy day and be done with it. I have several reasons for this which I'll share.

Different money has different purposes
I like to keep my portfolios and money organized in a clear cut manner. If I had one savings account then how much would be set aside for an emergency like losing my job and how much would be set aside for a planned vacation that is ok to pull money out of the account? They have different uses. If they have different uses and different goals each would have different funding levels where one might need more money than another to fulfill its purpose. Separate accounts make it easy to see where you stand.

Legal reasons and establishing a business
I consider my rental property its own business. Even though I have a property manager keeping an eye on things I spend a good deal of time on this business and I am in constant communication with the property manager discussing changes, upgrades, repairs, and legal matters. If it were any other business like say a pizza restaurant, well the owner would not pay his groceries out of the restaurant's bank account. It gets everything convoluted and hard to keep straight.

With these two reasons in mind you'll see I have two savings accounts within the Real Estate section of the portfolio. The Real Est Savings is for repairs. I just recently replaced the furnace and installed a new A/C unit but I want to be prepared at any time for a major repair. $2,000 gives me that cushion.
The Real Est Cash is the unused cash that I have available for discretionary spending. Now it has to be spent on things for the rental but I have flexibility in how that gets accomplished.
Sometimes I will make the mortgage payment from that account freeing up income from my paycheck for other things.
Sometimes I will make a payment from both account to speed up paying off the loan.
Sometimes I'll have it sit there if I expect a major expense coming.
The key thing is it brings in flexibility.

Know your psychological limitations
I have something to admit to you guys. I am terrible at saving money. Absolutely terrible. That might sound funny after revealing several savings accounts but its true. I cannot keep money in my main savings account tied to my personal checking account that my debt card pulls out of. The problem is that I do not see it as a savings account as much as an "checking account overdraft fund." For whatever reason I will save up a couple thousand then subconsciously spend a little more with the debit card and overdraft my savings to $0. Funnily enough I never go below that limit and buy something that truly causes a deficit. No matter how mad I get at myself that I will never do it again, I eventually seem to.
So instead of fighting that aspect of myself I work around it with separate accounts.

I am currently in need of yet another savings account. I want it to be a slush overflow fund of a sorts. Where I can apply the cash wherever for whatever reason. CDs at this time are not giving much more over savings accounts but the Fed has hinted that next year it will start raising rates. I want cash ready to go if CDs start offering good rates again.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

1 comment:

  1. I struggled saving money when I first got married. We were always waiting for x number of paychecks to come so we could buy things that new couples 'need' (washer, fridge etc.)

    As I got raises with my job and new income sources I have always paid myself first and then got our other stuff second. My first job I made 270-300 per week and have pretty much limited my spending to those levels. My family has no idea how much I make now they just know they are allowed to spend a limited amount each paycheck.