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Saving Tip: Using sub-savings accounts for unexpected expenses

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“The real troubles in your life are apt to be things that never crossed your worried mind, the kind that blindside you at 4 pm on some idle Tuesday.”
— Kurt Vonnegut

I wish we were always smart enough to prepare for flat tires, traffic tickets, coffee spills on our laptops, emergency flights for someone sick in our family, and other unexpected expenses. But we’re not — even though they consistently happen, month after month. Ironically, the expenses themselves may be unexpected, but the occurrence of them is very predictable.

Here’s an example late fee that I just got:

I wish I hadn’t gotten this, but things fell through the cracks with the book launch. After learning this the hard way a few times, I decided to get proactive about unexpected expenses.

I’ve set up a sub-savings account and now save about $150/month for unexpected expenses. At the end of the year, I sweep the account, taking any extra that’s still in it, and move it over to my “general” savings account.

In your savings account
In my ING savings account (now called Capital One 360), I create sub-accounts by logging into my account, clicking “New account,” and following the instructions. It will seem like you’re creating an entirely new savings account, but you’re not — after creating it, it will be a sub-account within your main account. ING Direct works best for me. I haven’t found another savings account that lets you create sub-accounts, but you can always use Excel.

These sub-savings accounts are incredibly useful for focusing your savings. I’ve previously written about using them to hedge fuel costs, but in general, it’s easier to save for specific goals rather than a guilty, “I should save” account.

Sub-accounts in your email
I also have a sub-label set up in Gmail using Folders4Gmail:

I like to add all important emails to various sub-accounts so I can eyeball them and get a sense for how often something is coming in — especially when I can’t easily track something (e.g., how many speaking engagements I’m getting).

Book excerpt: Unexpected income & expenses
From Chapter 4 (“Conscious Spending”) of my new book (#1 Amazon bestseller), where I describe how to handle unexpected income and expenses:

Read the reviews and forward your receipt to to get spreadsheets, a signed nameplate, and bonus content.

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  1. Hey Ramit, new reader, but I really like this tip. Especially the stupid mistakes category!

  2. Nassim Taleb, author of the Black Swan, has a similar tactic. Granted, he’s certifiably rich: He puts aside $2000 at the beginning of each year to cover Black Swans (unexpected events and stupid mistakes). At the end of the year, if there is any money left, he donates it. The end result is that he doesn’t really stress out when something bad happens, because that money is gone anyway.

    I do a similar thing for my dog. I know that hideously expensive vet bill is coming down the pike. Maybe not today, maybe not this month, but it’s coming. So I have a sub-account with ING Direct that I funnel $25 to every paycheck.

    My philosophy is this: You either save beforehand and put money aside for these kinds of events. Or you save after the fact as you put money aside to pay off the charge you made to your credit card.

    Another suggestions I have, is to start a sub-account for a new laptop or computer. It’s only a matter of time before your computer dies. Rather than have to unexpectedly plop down another $1000 when that happens (or put it on my credit card and pay it off—as it accrues interest) over the next year. I prefer to pay in advance and let it accrue interest on my behalf, instead.

    The one psychological barrier I’ve found, is that it’s a lot easier to raid your laptop savings than it is your pet’s emergency fund.

  3. kevin from minneapolis Link to this comment

    Does creating all those accounts affect the amount of interest you earn?

  4. You can create sub accounts using SmartyPig ( I signed up several months ago before opening up an Orange Savings account with ING. The benefit of SmartyPig is that other SmartyPig members (preferably your friends and family) can share their savings goals which helps people to stay motivated. When you are being watched, you are more likely to do the right thing…in this case, save your money. The sub accounts you create are towards financial goals. Money can be transfered between your main account and your SP account. Once a goal is reached, you can also elect for a gift card (extra 5% back too! 🙂 ). I think I will stick with just transferring my balance back into my savings/checking account when my goal is reached.

  5. Ramit,

    In my humble opinion, you are confusing people by insisting to call the “New Account” a “sub-account”. Let me explain why I think so, by asking a few questions.

    1. In what sense is the new account subordinate to the original account? Do they share the same account number? NO.

    2. Will closing the original account automatically close the “sub-account”? NO.

    3. If you add money to the “sub-account”, does the balance in the original account increase? NO.

    I think you can get away with calling them sub-accounts, because the interest rate you earn is the same in the “sub-account” as in the original account. Since that is the case, it makes sense to have multiple accounts to help organize your finances…

    BUT, I do wish it was possible to have TRUE “sub-accounts” with ING. I wrote about it at another blog earlier, here is my explanation of why true “sub-accounts” would be great:

    Now that ING is offering Tax Free Savings Account, it would REALLY be great if we could truly have “sub-accounts”.

    Think about it. The way things are today, you can have only one (1) TFSA account. But, we all realize the benefit of having more than 1 savings account; it makes it easer of us to ‘categorize’ our savings. So, if you are like me, you have one TFSA account, and multiple other “non-tax-free” savings accounts. BUT, this way I”m only earning tax free interest on the money in TFSA, not my other savings. This is not what I want!

    It would be GREAT, if all my savings could be in TFSA, just in different “sub-accounts” of my main TFSA account. This way, ALL of my savings would be earning tax free interest.

    just my 2 cents,


  6. EmigrantDirect also allows subaccounts.

  7. HSBC online savings allows you to quickly create new online savings accounts. You aren’t restricted to just one account. Then you can manage all your accounts online and give them nicknames. Not quite as convenient as ING, but HSBC has higher rates of return and this small inconvenience is well worth that IMO. Nevertheless, it is possible to do sub accounts with HSBC like ING.

  8. As one who doesn’t always do really well with staying on top of all of my financial plates that are spinning, I find this a really good idea to avoid those depressing days when the giant bills come crashing down.

    I don’t have an ING account but am pretty sure I can implement the same sort of thing with my current online banking system.

    Thanks for a solid tip…and I don’t think many of us are too confused.

  9. Hey Ramit
    Read the first chapter to the book online and ordered it on amazon. Great stuff. Looking for the spreadsheets to get my credit in order. Anyone know where these are for download? Cannot find on the site.

  10. Oh, it’s not Vonnegut, it’s Mary Schmich, Chicago newspaper columnist.

    That said, I have HSBC, but am too lazy to do new/sub accounts…