
Time: 6–8 min.
- Separating money into dedicated bank accounts for everyday expenses, savings, emergency funds, and retirement helps you stay financially organized and disciplined.
- Short-term goals (e.g., vacations or home renovations) and long-term goals (e.g., retirement or a home down payment) benefit from distinct accounts to track progress and optimize savings strategies.
- Tools like budgeting apps and financial services (e.g., Marygold & Co.) simplify account management, making it easier to save and transfer funds.
How to Separate Money in Bank Accounts
Learning how to separate money into different bank accounts associated with your specific goals will help you stay financially stable and disciplined. Having separate accounts for different uses is a great way to effectively help you reach your financial goals, or make sure that you have money set aside for a rainy day.
When you set up multiple accounts, it makes saving for specific short-term and long-term goals simpler. Otherwise, as the saying goes, you will “rob Peter to pay Paul”, or you’ll use money you have saved for one purpose on something else and find your finances lacking later. With the best of intentions, without the proper financial education, you will fail to save for short-term and long-term goals.
What Accounts Should You Set up?
The number of accounts you should establish depends only on your individual goals. By separating your goals and prioritizing them, you can view your direct progress towards each at a glance. For example, if your goals for the next couple of years are to go on an international vacation, buy a new car, and start saving for a down payment on a house, you would want to have 3 separate accounts to track those goals.
However, you might not know that there are different kinds of accounts to consider based on your individual needs. Consider the following:
Everyday Expenses Account
An everyday expenses account allows you to have consistent access to the cash you need for such expenses as rent or mortgage payments, utilities, clothing, food, transportation, and loan payments.
To set up this account, you need a budget. With an accurate budget, you know how much of your earnings must remain in this account in order for you to afford everything you need. You need an accurate determination of the weekly, monthly, and yearly expenses you will have to pay. From there, you can set up categories in your budget for fixed and variable expenses.
Fixed expenses are costs you know are coming at set times. You can predict exactly or nearly how much each will be. Fixed expenses might include:
- Mortgage or rent
- Utility bills (e.g., internet, cell phone, heat, electricity, gas, and water)
- Car payment (if monthly)
- Insurance (if monthly)
- Bank fees
- Debt payments on a debt repayment plan
Fixed but not monthly expenses you must budget for include things like:
- Property taxes (quarterly, semiannually, or annually)
- Annual home insurance
- Vehicle insurance (quarterly, semiannually, or annually)
- Health expenses
- Annual check-up vet bills
- Regular vehicle maintenance
Variable expenses may not be the same amount each month and/or they might not occur monthly but you know they are coming and you need or want to budget for them. These might include:
- Food
- Personal care items
- Gifts
- Fuel
- Public transportation costs
- Parking fees
- Clothing and shoes
- Daycare
- Work lunches and snacks
- Dining
- Entertainment
- Luxury items like cigarettes or alcohol
- Child care
- Hobbies, sports, and recreation
- Haircare
- Subscription services
Savings Accounts
Once you have a handle on what expenses you need to cover, you can calculate how much money you should set aside in savings.
A single savings account is fine if you only have one goal, like saving for a big vacation or a down payment on a new home. However, if you have several goals like a new car, home renovations, education for your children, and/or retirement, you’re going to want to have separate accounts for each of these savings goals.
Emergency Savings Account
Financial advisors suggest that you set up an emergency fund or “rainy day” account so that you are prepared for unexpected expenses that might pop up. We all know that unexpected events occur; your car breaks down, you get caught in the company downsizing, you have an injury that puts you out of work with medical expenses not covered by insurance. A good rule of thumb to follow is this: This account should have enough to cover fixed monthly expenses for between three and six months. This will help you stay afloat during times when you may not be able to earn income, or help you make an emergency payment that can’t be avoided or put off.
Retirement Savings
Once you have started earning money, one of the savings accounts you open should be designated for retirement savings. It is never too early to start saving for retirement. Financial experts estimate that individuals should include enough in their retirement savings so they have about $45,000 a year or $61,000 for a couple, at their disposal.
You have options for what kind of account you want to hold your retirement savings, including investment accounts like a 401(k) plans or an IRA. It’s important to explore what options you have in terms of accounts and choose the one that works best for your situation.
Setting aside a few dollars each paycheck for retirement in high-yield long-term investments or savings will ensure you aren’t one of the 64% of Americans whom writer John Maudlin notes cannot afford to retire.
Why separate savings from expense accounts? When money isn’t needed to cover monthly expenses, you can enjoy higher interest rates available for accounts intended for long-term goals, and your money goes further.
How to Separate Money in a Bank Account
The first step to keep your finances organized is to clearly identify your expenses and your goals. Use a financial budgeting tool that allows you to separate your long and short-term goals so you can invest in these goals accordingly.
- Start with a no-fee spending account for expenses. If you have a budget, you know how much of your earnings need to stay in this account.
- Then establish interest-earning savings accounts earmarked for your specific short and medium-term savings goals. Whether it’s new clothes, a ski pass, snow tires, or a vacation, set each goal with its own amount and date.
- Next, if your intention is to save for long-term goals like retirement or a down payment on a house, consider consulting a financial advisor about investment options that may provide greater returns towards your longer-term goals. Also, set a plan to de-risk these investments into cash options as you get closer to your predetermined goals.
How Can Apps Help You Save Money?
Thanks to rapidly advancing technology, apps have become handy tools for keeping track of various accounts for both businesses and individuals.
Using your computer or your smartphone, you can easily and quickly check the balances of your accounts and make transfers to move funds from one account to another.
In recent years, financial institutions like Marygold & Co. have made free financial service apps available to their clients to make spending, managing, investing, and saving your money convenient and accessible to more people. The number of American customers with smartphones has grown to over three billion. Customers using mobile banking apps also progressed at a similar rate. Thus, banks and other financial institutions need to invest in mobile apps that make their services more convenient and easy to access.
How Can Marygold & Co. Help You Save Money?
Marygold & Co.’s financial services app offers multiple tools to help keep their clients organized and in control of their individual financial goals. Marygold & Co. offers budgeting features that allow you to see what you spend the most on from month to month so that you can know your expenses at a glance. Having this information is important in knowing how much you’ll need to keep in your everyday expenses spending account.
One of the other key features that Marygold & Co. offers is the Money Pool Savings Account which allows clients to separate and categorize their money all within one account. It is as simple as creating a goal, setting a projected date for your goal, setting your desired amount, and then allocating funds from your paycheck into your Money Pool.
If you have a short-term goal like buying a bike, you can create a Money Pool.
If you have a long-term goal like buying a house, you can create a Money Pool.
Each financial goal can have a separate Money Pool making it easier to track the progress as well as differentiate between each individual goal. Seeing the accounts in one place not only alleviates the stress of keeping up with multiple bank accounts, but it also allows clients to keep their financial goals in mind.
With Money Pools, Marygold & Co. clients can more effectively reach their long-term and short-term savings goals.
There are many ways to set aside money for your future, but by far the most effective way is to put your money into the right kind of account for the situation. Checking or spending accounts are the right place for money you intend to spend in the very near future on things like food, rent, or utilities. A savings account is preferable for money that you intend to set aside for your larger goals like a new car or home down payment. Setting up a savings or checking account can usually be done quickly, and you can start saving towards your life goals as soon as you want to!
Disclosures
This content is intended solely for providing information and should not be interpreted as financial, legal, or tax counsel. It is strongly advised that you seek guidance from your personal financial, legal, and tax consultants before participating in any financial transaction. Please be aware that the information, including hypothetical financial forecasts, might not account for taxes, fees, or other variables that could significantly influence potential results. This material is not to be regarded as an offer or suggestion to purchase or sell securities. While we believe that the information and sources are accurate, Marygold & Co. cannot assure the accuracy or comprehensiveness of the information and sources provided here, and we are not obligated to update this information. For further details about Marygold & Co., please visit our website.