Jun 25 2008

Savings accounts need a specific purpose

In an earlier post, I mentioned that for you to actually be saving money, you need to physically move money to a savings account.

Lulugal made an interesting comment:

I CAN say that I save money when I buy something on sale because my money is in an interest bearing account. I have all my money in ING, most in the savings and some in the interest bearing checking account.

I use (cash back) credit cards to buy things and then send the money from the interest bearing account to pay for the purchase before any interest comes due.

I don’t have to ‘go put the money’ I ’save’ from a reduced purchase in the bank because it is already in the bank earning interest. If the item is on sale then the difference is already in my savings account because then I would just transfer the smaller amount to go as a payment.

What do you say to that? :-)

Lulugal, to that, I say, “If it works for you, cool.”

But for me, that wouldn’t work at all. My savings accounts need specific purposes–and maybe yours do, too, and it just wasn’t clear to me by your comment.

This is what works best for my budgeting style.

If I just had one checking account and one savings account, I would have a difficult time actually saving for goals. There wouldn’t be a specific purpose for my savings. It would just exist, ready for me to grab if I wanted to.

Instead, I need to give a purpose for each account.

I absolutely need to have a separate savings account for emergency savings and nothing else. Once money is put into that account, I cannot tap it unless a true emergency arises.

I have a savings sub account for car insurance. Each month, I deposit about $60 in that account. In November when my next premium is due, I’ll have the money ready to pay in full.

Once our emergency fund is complete, I’ll open more savings sub accounts, and I’ll give them purposes such as: Vacation, Gifts, Second car, House down payment, etc.

It’s great that your money is earning interest. But unless those dollars have a specific savings purpose, I would have a much more difficult time saving for specific goals.

I recognize that your personal finance habits are personal to you, and it sounds like it’s working for you. I just need my accounts to be a bit more focused.



13 Responses to “Savings accounts need a specific purpose”

  1. I’m with you, Kacie. My husband’s saving account is the “all purpose” account in which we save money but not with a purpose. However, MY savings account is the purposeful account. This past year I used the account to save up for our Disney vacation so it could be cash-only (it was). I’m now using it to save up for corneal molds so I don’t have to wear glasses ever again. Once that is done I’ll save up for the next project. I DEFINITELY have to have a goal in mind when I put money into the account, or else there is no incentive for me to put any money into it. Many years ago I used the account to save up money to buy a piano. It was a GREAT feeling to plunk down cash on the counter and have a gorgeous brand new piano delivered to my house a few days later. I love that piano. I worked hard for that piano!!

    Jaynee’s last blog post..Some Rights Reserved

  2. I have a savings account, but I pretend to myself that I don’t. I shuffle the money into it as soon as I get paid, and rarely check the balance. I know if I start looking at it, I’ll start wanting to spend the money. I figure the same goes if I apply a reason to the account. “I can buy $this instead of $that”.

    I have too little willpower to tease myself like that. :lol:

    Solomon’s last blog post..Things I’m Grateful For on Tuesday 24 June

  3. I’m the same as you, all my goals have their own accounts, & they all are named for the goal.

    debtdieter’s last blog post..Sydney Petrol Prices Hit Record Highs Ouch!

  4. I’m the same way as you- I need to see where the money is broken down into. I have thought about creating a spreadsheet to track the different “funds” but I think it’s easier just to have different accounts. For example, I have my emergency fund and then a hardwood floor fund. Now I won’t touch the emergency fund for hardwood floors! :)

    MrsMoney’s last blog post..Pinecone Research Changing Their Payouts for “Grandfathered” Panelists

  5. I’m more of a hide-the-savings-account girl. I should really get on top of my ING subaccounts to make them useful. And ignore what’s not in the subaccounts.

  6. Kacie, I am exactly like you. I need to have certain goals for each amount I save and I need to have each amount seperate. It is easier for me to keep track of, to know exactly what is what, and what I can touch if need be and what is a no go. This is exactly how I plan to go about savings and hopefully, we as well will be able to have accounts for Holidays/Birthdays, Christmas, House Down Payments, ect.

    I also think that is an awesome idea for your car insurance premium, I never thought of doing that. We pay month to month, which is the long run we lose a lot of money doing that. We just never have the full amount to put down when it’s time to do insurance again.

  7. @ Vanessa– It can be a challenge to pay that very first car insurance premium in full.

    But when you do it once, then you just have to pay yourself monthly and it’s a piece of cake.

    To get to that point, maybe you can put aside a set amount per month to go toward paying the policy in full. It might take awhile, but eventually you’ll save a bit of money.

  8. Hi Kacie,
    I guess I was not clear enough so I was misinterpreted. I do have sub accounts for different savings like emergency fund etc.

    I was just referring to the fact that if something was $100 and then went on sale for $75 I would not have to do anything to the $25 difference because it is already in a savings account and earning interest because I would pay for it using my cash back card and then pay $75 to the card to cover the payment.

    Your analogy was saying that you have to physically move the ‘savings’ over to an account and I was just saying that it sounds like you are assuming that everyone keeps money in a non interest bearing checking account, but that does not apply to those who already keep their money in savings.

    Glad to see that this topic is generating interest though. :-)

    BTW Keep on with the CVS posts…..you are the reason I started shopping there! You explained it really well.

    lulugal11’s last blog post..Mother In The Hospital: June 25

  9. I just recently added a Vacation Pay sub-account to my ING Direct and formally named my first account as an Emergency fund.

    I added the Vacation one because I got paid all my 2008 Vacation in a lump sum (even though I’m only taking 3 days of vacation out of 15 available, starting tomorrow). This way the money earns interest until I need it and I can put a per diem amount back into my chequing account as I use my vacation days.

    And I *used* to save monthly for my car insurance and pay it annually but haven’t done that since I remarried. Hubby pays it monthly, which means there is an associated cost. But we don’t have the $1,500 or so just hanging around to pay upfront.

    Kacie, your suggestion to set aside an amount monthly (even if it’s less than a full monthly payment) is a good idea. We should try it.

    Shevy’s last blog post..Burning the Candle at Both Ends

  10. I am getting everything ready to open accounts for my “savings payday” [i.e. the paycheck with no house payment] I like the idea of sub-accounts and naming accounts for a specific purpose–great help visualizing what I’m doing. It’s kind of “reverse Dave Ramsey”–instead of putting money into the “envelope” to spend, you’re putting it in to save [and possibly spend later for a car, new heat pump, braces or whatever.]

    Lisa’s last blog post..What I’ve been reading

  11. I also have to set aside different amounts of money for things…if I had one huge pool, I would probably think that I have a lot more money to spend on clothes or travel…I even have multiple checking accounts! :)

    SavingDiva’s last blog post..What?!

  12. I think I interpreted the original post differently.

    If I buy something originally priced at $100 for $25, did I save $75? No. I spent $25.

    Whether or not I saved anything depends on what I intended to do. Did I go to the store intending to spend $100 on that item? If yes, then I saved $75. If I went, thinking it was on sale for $50, because I would never spend $100 on it, then I only saved $25. If I bought it because it was a bargain, and I wouldn’t have bought it for anything more, then I didn’t actually “save” anything.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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