by Emily Hechler 
Saving is the backbone of healthy financial well-being, but what’s the best way to save? Opening a savings account and adding funds or setting up regular automatic transfers on paydays is easy, but is that enough? To make your savings “stick,” you might consider opening multiple accounts to break your money up into multiple goal-driven savings accounts.
Here’s a personal example to show how effective this strategy is. My husband’s 30th birthday is next year. I want to throw him a party he won’t forget, which is going to cost some money. We’re talking about a long weekend at an AirBnB with close friends. In addition, I’m enrolled in grad school and can graduate sooner if I take more classes more often. The only thing stopping me is having enough money to pay for both. I refuse to go into debt to pay for these expenses. By setting up separate savings accounts for these two initiatives, I can start progressing toward my goals.
Let’s tackle this in two parts: why you need savings goals, and why you need separate accounts. You need a clear grasp of both to see how they work together.
Why You Should Create Savings Goals
Savings goals are powerful tools to keep you feeling in charge of your finances.
Budgeting your Savings
Everyone should follow a budget. If you haven’t created a budget, check out this blog for help creating one. When you create savings goals, you can add the account, or accounts, as items in your budget. By creating a realistic budget, you can ensure that you will reach your savings goals when you stick to the plan.
Budgeting your savings means that you must determine your timeline and how much money you want to save. Then you have to calculate how much money you need to save each month to reach your goal in time.
Here’s a breakdown of my situation:
- Husband’s Birthday: Save $1,500 in 16 months = Save $93.78 each month. Since I get paid similar amounts twice a month, I’m going to save $47 from each paycheck for the next 16 months.
- College Tuition: Save $4,020 in 15 months = Save $268 each month, or $134 from each paycheck for the next 15 months.
Reach Your Milestones
Our society has major financial milestones—buying a house, maxing out your IRA, building a strong net worth, and more. These goals take years of intentional effort, and casual saving won’t get you there. Setting clear savings goals gives you a focused path to achieve them.
In addition to saving for my husband’s birthday and my college tuition, I want to max out my IRA every year. This requires contributing $292 from each paycheck to this account (assuming that I’m already on track at this point in the year).
Plan for Your Future
Planning for your future doesn’t just have to include those milestones. Want to take a birthday vacation? Start saving for it. Ready for a kitchen remodel? Set aside money to make it happen. Sending a kid to college in a few years? You get the idea. Saving ahead of time helps you avoid unnecessary debt, interest charges, and the stress of paying for expenses after the fact.
I know one of our cars will need to be replaced in the next couple of years, so I’m planning ahead now to avoid stress and financial strain down the road. I’m setting aside $100 from each paycheck to build a larger down payment now.
If you’re like me, you probably have more than one savings goal too. I’m already at four goals just with these ideas. By only having one savings account to dump my savings into, I’m risking creating problems for my future self.
What if I can afford to save a little more with a side-gig’s income? What if I transfer too much money to my checking account and fall behind on my savings goals? How much money do I really have saved for each one?
Benefits of Having Multiple Goal-Driven Savings Accounts
If the “why” to creating multiple savings accounts isn’t enough, the benefits of doing so are tangible too.
Staying Motivated
One reason multiple savings accounts work so well is they help you stay motivated to reach each of your goals. Being able to see exactly how much you have set aside helps you feel like all your hard work is paying off, literally. Every time I login into online banking, I see my “Hubby’s Birthday Fund” or “Car Down Payment” account balances growing. Some of these dates are quickly approaching. Whenever I want, I can see exactly how much I’ve saved for each of these expenses.
Reaching Your Goals
This tactic can also help you realize what you really want. Do you want to travel? Open an account and make it happen. Do you want to go back to school? Open an account and start saving for tuition. Do you want to buy Christmas presents without maxing out your credit cards? You know the drill… open a new savings account and start saving up for Santa.
Getting Out of Debt
It’s also a great way to live within your means and accomplish your goals. You won’t have to worry about going into debt or paying high interest. In fact, if you choose an account that’s interest-bearing, your goals could even pay you! With Alltru’s High Yield Online Savings account, you’ll earn higher than average yields on your money.
For me, if I stick to my goals, here is what I’ll have saved in 15 months from now:
- Hubby’s Birthday: $1,410
- College Tuition: $4,020
- IRA: $8,760
- Car Down Payment: $3,000
- Total: $17,280
Not saving enough money for retirement can be its own blog article. But the others can be tackled more directly. Here’s the perspective of how much money I’d be spending if I didn’t save for these expenses ahead of time:
- Hubby’s Birthday: Paying $93.73 a month for this expense on a credit card at a 14.24% interest rate will take me 17 months to pay off. Plus, over $150 of my total is only interest fees.
- College Tuition: Paying $268 a month for this expense through a Direct PLUS Student Loan at 9.09% interest will take me 16 months to pay off. Over $263 of my total is only interest fees.
- Car Down Payment: I want to buy a Ford Escape for $30,000. Let’s assume I have $3,000 I can pull from my savings. Adding $3,000 from my Car Down Payment Savings account gives me $6,000 for a down payment, which is 20% of the purchase price. With a loan term of 60 months at 5.74% interest, my monthly payment will be $461.09. If I only had the $3,000 for a down payment, my monthly payment would be $518.72. By saving $100 a month for 15 months, I’m saving over $57 a month for the next five years.
Are You Ready?
Juggling multiple savings accounts might not be right for you. Make sure that you’re able to effectively manage them and that your accounts are helping you reach your big picture goals. For example, if you’re not saving enough of your income for retirement, opening a new savings account up for travel may not leave you better off in the long run.
By creating financial goals and clearly tracking your progress through separate goal-oriented savings accounts, you’re on your way to long-term financial stability. Clear goals keep your priorities in check. When you track your progress every month (or per paycheck like me), it becomes easier to see how else you spend or save money each month.
If you have questions, we’re always here to help.
