Disclaimer: This is an older post and my views have changed with time. If you want more recent recommendations, I’ve put my favorite checking accounts and online savings accounts in their own separate blog posts.
Ok today I’m going to break down how I’ve structured my bank accounts.
If only that sounded cooler.
Anyway, I have 3 main accounts:
1. Wells Fargo
- Checking account: This is like the inbox of my financial infrastructure–it’s where I deposit everything first, then sort it out. My checking account earns no interest, so I move it stuff out of here regularly.
- Savings account: I hardly use this account. It’s only for short-term money that I will need in less than a month. For example, if I’m subletting a place out and have a security deposit that I’ll refund in a month, I’ll move it here. Or if I bet someone and the bet comes due in a month, I might keep it here. The downside of this account: The interest rate sucks (it’s only 0.50%). Upside: You can transfer money between Wells Fargo checking/savings accounts in less than 24 hours.
2. ING Direct
- Savings account: I opened an ING account It’s a normal savings account, FDIC insured, all that. The only difference is that you do your banking online (transferring back and forth, to other accounts, etc). If I need to transfer to or from it, it takes a few days (but is free).I keep the majority of my discretionary savings here. So from every dollar I earn, I transfer a percentage into this account. I might use money here for an emergency fund, mid-term savings like for furniture for a new place, or car maintenance that I know I’ll have to do in a few months.
- Investing accounts: These include a couple of different stock accounts and a Roth IRA. This is where all my long-term money goes!I used to have a money-market account, but it was only earning about 1.5% (compared to 3.30% at ING), so I closed it. Now, when I want to invest money, I just transfer it over to ETrade, where it sits until I invest it.
Ok, so that’s the logistics of how I’ve set my accounts up. I wrote so many words above, but what does it all really mean?
Build yourself an infrastructure to make it easier to save.
Here’s how: For every dollar that comes in, I allocate percentages to different accounts. For example (I’m making these numbers up), let’s say I made $100 from a paycheck. I might put
25% in savings
50% living expenses
And you can make it easier by having multiple accounts. I manage all of this stuff in Quicken, so even though I may have $1,000 sitting in my ING account, I can easily tell that $200 is for furniture, $300 is for an upcoming car repair, and the rest is for whatever.
It’s not that hard!! Take some simple steps:
1. Open an investment account. Start sending some % of your income there. Money should almost always flow TOWARDS your investment account, not away from it.
2. Open a savings account and use it to segment your money. Remember, an investment account is for long-term savings. A savings account is for mid-term savings–and if you can’t think of anything you’ll need in the next 5 years, trust me, you will (e.g., a car, a mortgage, a wedding, a new hairdo, who cares). If you want to do it at your own bank (BofA, Wells Fargo, etc), great. If you want to open an ING account, great. It doesn’t matter–just get your money into smaller, more manageable buckets.
3. Allocate percentages. Use your budget to figure out the maximum % of each dollar that you can allocate to different accounts.
The key point of this whole thing: Once you create this infrastructure, your money is MUCH easier to manage. It’s like using shelves on your desk–all of a sudden, your paperwork is easier and more welcoming to deal with. Once you have different accounts and a set % of money going to them, it becomes much more automatic. And like I wrote yesterday, you can start dealing with the more interesting questions, rather than focusing on logistics.
If you have questions, just ask.
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