How multiple bank accounts can help you budget

How many bank accounts do you need? Two, one checking account and one savings account? One bank account that does both?

I’ve found that using several bank accounts can make it easier to budget and spend less. Yes, maintaining different accounts requires a bit of juggling, but it pays off when you start saving money.

While there’s no wrong way to manage your finances if your system works for you, having multiple bank accounts for budgeting is an effective way to keep track of your money and stay on top of your spending plan.

But the right number and mix of bank accounts for you is a personal decision. Here, I’m going to show you a few different ways to manage multiple bank accounts in order to automate your systems, stick to your budget, and save.

Having several accounts might sound like it would be more difficult than just having one, but it’s actually easier — and better — for a lot of reasons.

When you have just one account, it’s up to you to keep your budget straight and your earnings, spending money, savings, and everything else separate. And when these are all lumped into one category, it’s too easy to overspend. If you’re doing it right, a money management system with multiple accounts can help you:

• Stick to your budget
• Track your spending
• Save money more quickly

So how do you get started? Here’s just one approach you can try that I use.

How many bank accounts should you have? The answer depends on your spending habits and goals.

Personally, I have three checking accounts, multiple savings accounts, and three credit cards that I regularly use. All non-business accounts are joint accounts with my wife. I am intentionally omitting investing accounts.

My banking setup is straightforward. It’s worked for me, with only slight variations, for more than 20 years.

These are my bank accounts:

• Business checking
• Primary spending account (checking)
• Reserve spending account (checking)
• Emergency fund savings account
• Reserve savings account
• Business credit card
• Travel rewards credit card
• Cashback credit card

You might not need all of these accounts and products. Here’s how I use each one to give you an idea of which accounts might be useful for you.

Business Checking Account

If you’re self-employed full- or part-time, you might consider sending all of your earnings right to a designated business checking account.

It doesn’t matter if your earnings come from running your own business or just some occasional freelance work. Keeping your business receipts and expenses in a separate account is good financial hygiene for two main reasons:

• It makes taxes easier by organizing your income streams in one place
• It preserves liability protection if you have an LLC

Each month, I look at my business profits and set some money aside to reinvest in my business. The rest I sweep into either my reserve savings account or investment accounts.

Reserve Savings Account

My reserve savings account is a “catch-all” account. It holds money I’m saving for big goals like vacations but also money I haven’t come up with a purpose for yet.

Instead of just spending my paycheck, I automatically transfer funds out of this reserve savings account each week to use for spending money.

I transfer my business income into this account, not my checking account. I do this because I want to earn interest on any money I don’t immediately need to spend and avoid keeping more money than necessary in a checking account that has a debit card attached to it. More on that in a minute.

Emergency Fund

My emergency fund is in an account of its own at a completely separate bank from the rest of my accounts. I funded it a long time ago and — knock on wood — have not needed it, so it sits there earning interest. In an emergency, I would transfer money from it to my primary spending account and replenish the emergency savings from my reserve savings.

Having more than one savings account helps you keep emergency and non-emergency savings separate. For example, it would be difficult and inconvenient for me to rob my emergency account to beef up my vacation fund.

Whether you use the same bank or different banks for your reserve savings and emergency accounts is up to you, but I do recommend using two separate accounts.

Primary Spending Account

My primary spending account is a basic high-yield checking account. You can get a checking account with any bank or credit union, but a free high-yield checking account lets you earn interest and save. Online banks tend to offer better interest rates, fewer fees, and more features than traditional banks.

I recommend keeping as little money as possible in your primary checking account so you’re not tempted to spend more than you need to. If your account has a minimum balance requirement, make sure you’re meeting it. Otherwise, keep only enough for your spending.

I use this account to pay fixed expenses like my mortgage payments, utilities, insurance bills, and personal credit card bills as well as fund my Venmo/Cash App.

This is a spending account, not just a checking account. I only transfer as much money out of my reserve savings as I need to cover my bills, which helps me stick to my budget. By contrast, a checking account has money flowing in and out of it all the time, making you feel like you have more money to spend.

Reserve Spending Account

My reserve spending account is a second checking account linked to my reserve spending account and primary account. I use this account to pay other fixed expenses that come up less than once a month.

For me, this includes:

• Property taxes (twice a year)
• Auto insurance (twice a year)
• Life insurance (twice a year)
• Home insurance (once a year)
• Income tax estimates (quarterly)
• Propane (heat) (irregular, but more in winter)
• Snow plowing (winter only)
• Routine vet bills for four pets

What I recommend doing is figuring out what each expense works out to monthly. Then, transfer that amount to your reserve savings account each month and pay directly out of this account when bills are due.

Credit Cards

As long as there are no processing fees, I use credit cards for everything I can, from coffees to cars (when the dealer allows it). I should note that I use them responsibly by paying the balances in full each month and staying well below my credit limits. This way, I avoid late fees, hurting my credit, and paying interest. I pay my credit card bills using my primary spending account.

There are a few reasons I prefer credit cards, and not just for the rewards. Debit cards can be more dangerous than credit cards because they lack robust fraud protection and the ability to dispute transactions you didn’t make. Credit card issuers are like buffers between your money and merchants.

I like to use my travel rewards credit card any time I’m booking travel — whether that’s a flight, hotel booking, or car rental — and my cashback rewards credit card for everything else that’s not business-related. If you use multiple credit cards, make sure you’re taking advantage of different reward categories to earn as many points as possible.

But here’s the thing: using credit cards for daily purchases might not be a good idea if you’re on a tight budget. Unless you’re checking your statement every day, your spending can quickly get out of hand and you can lose track of how much you should be spending.

If you’re not careful, you can spend more money than you actually have with a credit card and get stuck with debt and interest. But with debit cards, you can only spend what you already have. Use a debit card if you have trouble with overspending and graduate to credit cards when you feel more comfortable with your budget.

Another method for managing multiple bank accounts to stick to a budget is to separate each account by the purpose it serves and the benefit it brings to your life. Bringing psychology to your system may help you commit to your budget.

It starts with five basic categories: Earn, Spend, Reserve, Fun, and Freedom. This system is similar to mine but works a little differently.

Earn account – your income goes here before being separated across your other accounts.

Spend account – like my primary spending account, the spend account is used for monthly routine spending.

Reserve account — used to store money that will be spent on less than a weekly basis, like my reserve checking account.

Fun account — used to save for “fun” goals like vacations, experiences, and splurges. In this system, it’s psychologically important to actually keep this fun money in its own account. For one, you can only splurge with “fun” money, not money from other accounts. Also, if you’ve ever had trouble treating yourself because you’re overly focused on saving, a designated fun account can help. Remember, spending some of your money today on things you enjoy is healthy!

Freedom accounts — a category of accounts that is usually broken down into an emergency fund, retirement accounts, debt payoff, and other savings. Freedom accounts are all the other things that you save for: the emergency fund, retirement, kids’ college, etc. The money you save in these accounts “buys units of freedom” in the future. 

At a minimum, everyone should have at least two bank accounts: a checking account and a savings account. You may need a business checking account too if you own a business or have freelance income. Online checking and savings accounts that don’t charge fees are often best.

Most people benefit from having two savings accounts, one for your emergency fund that you only touch in true emergencies and one where you save for goals and reserve money to pay for nonmonthly recurring expenses. You can use two checking accounts for different bills, but this may or may not be easier for you.

In general, savings accounts offer better interest rates than checking accounts but checking accounts offer more spending flexibility. Separate accounts let you have the best of both worlds.

When it comes to credit cards, only open as many as you feel like you can manage. One great credit card is plenty, but it doesn’t hurt to have a couple for different purposes. Just think about your spending habits and always pay them off in full and on time.

Budgeting with different accounts can take a little while to get used to, but you’ll thank yourself down the road for taking the time to start. Here are three ways to make multi-account banking work for you.

Get on the same page as your partner — If you have a long-term significant other, make sure you’re working toward the same financial and savings goals. How you manage your finances as a couple is up to you. Some married couples commingle every dollar while others keep separate accounts. Others pay bills like 20-something roommates. Do what works for you.

Start with the accounts you already have — Before you open a bunch of new accounts to separate your money, take a look at how you use your current bank accounts. Chances are, there’s room for improvement in your budgeting somewhere. Try optimizing your current system before doing a complete 180.

Use a budgeting app — For extra help staying organized, download one of the best budgeting apps. Most apps will let you link to multiple accounts, so you can track your spending in real time and see an overview of your finances in one place. Many also show you ways to save money and alert you when you’re over budget.

No matter what your multiple bank account system looks like, knowing how your money flows is an important first step in managing your finances.

If you’re having trouble keeping your spending in check, take a look at the bank accounts you have and ask yourself if they’re helping you budget or making it harder. Then, open any accounts you need to create separation and start saving money.