Nov 17 2008

How we use our checking and savings accounts

J.D. at Get Rich Slowly is discussing checking accounts today, so I thought I’d chime in and tell you a little bit about how we use ours.

We use our checking accounts to pay bills and do our regular shopping. Pretty basic, yeah? We don’t earn much interest from it, but that doesn’t matter since the money isn’t in our checking accounts for long, since hey, bills are due every month, ya know?

There is a small rewards program linked to our accounts, and from time to time we’ll get a gift card to a restaurant or store.

We try to do “zero-based budgeting,” where every dollar has a specific purpose. There’s not really extra money laying around. If it were just hanging out without a task, we’d send it to a specific savings account instead. That way, we won’t be tempted to spend it on something we don’t really need or want.

We do most of our banking with a traditional brick & mortar bank. Our accounts are set up like so:

– Kacie’s checking
– Main checking
– Charity
– Baby savings
– Car savings
– Emergency fund and additional savings

All of these accounts are linked to one another.

My checking account has a debit card specific to the account number, and I use it for groceries, gas, and general household shopping. Keeping it separate from the main checking helps us to track where the money is going. We don’t keep much here — just a few hundred dollars, as that’s all it usually takes per month to shop for our needs and wants.

Shane has the debit card for the “main checking” account. The bills are paid from this account, and we also have paper checks for this one. We pay most of our bills online, but it can be handy to have an actual checkbook. Shane gets paid monthly, so as soon as the money is in that account, it’s sent all over the place.

We take 10 percent and send it to our charity account, $277.33 to our car savings account (that’s enough for one double payment, and we’ll increase that after the new year if we can), some money goes into my checking, some money goes into savings, and a small cushion of $150 to $200 is left here to cover unexpected changes to our budget, and for Shane to use as he pleases.

At the end of the month, our checking accounts are both quite low. We do this intentionally. If we had more money left there, we might be more inclined to spend it on things we don’t really need. That’s why we make a conscious effort to put extra money aside into savings early in the month and as we get little windfalls.

Our charity savings is where we sock a percentage of our income as we receive it. We don’t always give to the same cause, so having it separate from our other funds helps us to remember to donate it, instead of it being absorbed into the day-to-day spending.

The baby savings fund was originally created so we’d have about $1,000 to buy whatever we needed for our son. There’s a few hundred left, and I don’t plan to add to this account unless it looks like we need to. We have pretty much everything we’ll need for those first few weeks (and longer, I hope!) so we can use that money to buy more diapers, nursing things, or whatever else we decide we need. It has been tremendously helpful having this account separate from our main checking or savings accounts.

Our car savings account is probably going to change soon. As I mentioned, right now we’re just sending double payments to our car loan for the time being. Instead of setting it aside, I can just write a check at the beginning of the month and send it on its way, rather than let it earn a wimpy .4 percent interest or whatever. Once we’ve decided to send all extra funds to the car loan, we can then reinstate this separate savings account.

For now, I think we might just put our “insurance savings” there instead. Rather than make monthly payments to our various insurance companies, we pay our policies in full and pay ourselves each month. Right now, the insurance savings is being sent to our emergency savings account, but it’ll be better to keep that separate.

Finally, our emergency fund is earning 4 percent interest and is available to us if we need it. I’ve been putting additional money in that account to take advantage of that interest rate, but it doesn’t have a specific purpose at this point. We might use the extra for things around the house, some new clothes, or maybe we’ll eventually send it to our car loan. Not sure.

We used to have our emergency fund in ING Direct, but I transferred it when this 4 percent interest offer came about, and I’m glad I did. ING Direct is now offering just 2.75 percent interest (I think). Our 4 % offer ends in March, so depending on what the rate is, it might be worth it for me to move it back (or somewhere else, even).

Whew! So that’s how our accounts are set up. How do you do yours?



3 Responses to “How we use our checking and savings accounts”

  1. I have a local brick-n-mortar bank for our regular, bill-paying checking account. On paydays (weekly), I pull out cash for groceries, gas, and entertainment.

    Every dollar is given a name. And, for simplicity’s sake, our budget is based on four-week months. Roughly four times a year, we have an “extra” paycheck, and I assign that money (minus groceries, gas, and entertainment) to various categories in my ING Direct savings subaccounts.

    Also, whenever my electricity fund (for example) gets to be too full, I transfer the excess from my local bank to my ING Direct savings fund for electricity—for when we get huge summertime bills. This way, our money is earning interest while it waits. It also helps for it to be “out of the picture” when going over our main checking account. I aim to live only on what is in our checking account, but I also want a cushion in our ING Direct accounts in case it’s needed. It’s like a back-up that takes precedence over our emergency fund when we have any huge electric bills.

    ING Direct helps me keep our regular checking account lean and trim, while storing fat separately for when we need it.

  2. We have a main joint checking and an extra one we call our “secret” account. I put birthday money, snowflake money, etc. there until I decide what I want to do with it. We have one savings account for the same reason as you- the great interest rate! I don’t know if we will divide the funds up later or not. I am kinda OCD about having too many accounts! ;)

    MrsMoney’s last blog post..Freeze Yer Buns Challenge

  3. I have one checking account and several savings accounts. I have one for my Emergency Fund, one for my Rental Property Savings and one for my short-term savings account.

    The short-term savings account covers everything not budgeted for in the regular budget.

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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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