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.