Hello investing and financial enthusiasts. Today I want to talk a bit more about a certain way of arranging your financials. I use this method myself and it helps me to save a little more money as well as making sure I don’t have unexpected big expenses that I can’t pay for. In short, multiple savings accounts dedicated to different purposes could be beneficial by saving up for these expenses throughout the year.
Different Savings Accounts
In these modern times, a lot of banks allow you to open multiple savings accounts (free of charge). Some of them even allow you to give them different names. The following savings accounts are the ones I would suggest everyone to have.
Emergency Fund
The first, and most important one, in my opinion, is the emergency fund. This savings account should contain enough money to get you by for a certain period when your income sources would completely disappear. This means that you should look at your fixed monthly costs. These costs can be the following (but could potentially be different for you): Meals, car costs and gas, rent or mortgage, insurance, …
If you add all these monthly costs together you’ll know how much you need to get by for one month. I would suggest that you’d have enough money saved up to get by for at least 6 months. This also means that the total sum of an emergency fund could be different for everyone depending on your lifestyle and monthly expenses. If your total monthly fixed costs are around €1000, I’d suggest that your emergency fund should at least be €6000!
Holidays
Most people take a vacation at least once a year. Holidays can easily cost you a couple of thousand euros a year. What I like to do is save up for these holidays throughout the year. If your yearly vacations costs you around €1000-€2000 a year (again this is different from person to person), I’d suggest you save around €100-€200/month on this savings account. This way, once it is time for your precious vacation, you have the money already there!
Another advantage I personally see is the following. There is a chance you get ‘vacation pay’ from your employer around May or June. This could be a pretty nice sum. If you already safe for your holidays during the year, this ‘vacation pay’ can be used as bonus money to invest or to fill up any of the savings accounts mentioned in this post if you are not fully there yet!
Depreciation
With this savings account, you could go as far as you personally want. We all have certain devices that we use in our day-to-day life. Examples are: Car, dishwasher, washing machine, dryer, laptop, … Unfortunately, these devices don’t last forever, they depreciate.
For these, it is possible to save up for the new device during its lifetime. For example, a laptop could cost around €1000 and has a lifespan of around 5 years. You could think about saving €200 each year (or around €17/month) to make sure you have the money ready once your device is ready for the bin. The same principle can, of course, be used for any device!
Pre-financing
This savings account is all about these bigger recurring expenses. An example could be a property tax that you need to pay every year. The principle is the same here as well. If your property tax is around €1200 every year you could save just save €100 every month to make sure the money is already there once this annoying bill arrives. The moment that it is paid you have another whole year ahead of you in which you can prepare for the next one.
Savings
This one speaks for itself. If all the previous savings accounts are already checked off, I would always suggest to start looking into investing, and this is how. Cash could of course be part of your investment portfolio as well. This is where this account comes in to play!
Another example could be that you are looking to save up for a down payment on a property you want to buy. This savings account can be used for that as well.
Conclusion
Keep in mind that you could work on your own strategy. Maybe you don’t need all these different accounts or maybe you can use even more. Of course, everyone lives his or her own life but I think a strategy like this could benefit everyone with their finances which could potentially lead to less financial stress as well.
I am always open to suggestions or feedback on how you arrange your finances and what I could do differently as well. Good luck on your financial journey!
