How Opening Several Savings Accounts Has Saved Me Money

A major tool in my budgeting toolbox is multiple savings accounts.

I do not consider myself a pessimist, but I have lived long enough to know that things sometimes go wrong. There are big issues that spring up, like a serious illness or unexpected job loss. And there are small issues, like a forgotten property tax bill or a surprise dental procedure. In any case, I want to be ready.

I can't predict the future or plan for all eventualities, but I can attempt to ensure we have the money we need to cover a variety of potential bumps in the road.

Why more than one account?

Years ago, when I was young, naive, and far too optimistic about finances, my husband and I ran into credit card debt. With stars in my eyes, I assumed that things would never go wrong. And then, the auto industry took a nosedive in the United States, and we were left with debt we would have normally paid off with one of my husband's bonuses.

I look back and realize that it may have been the best thing that could have happened to us because we learned an important lesson. Never, ever put more on a credit card than you can afford to pay off before the next billing cycle rolls around. And that's where our savings accounts come in.

How multiple accounts save us money

Let's say that we have an emergency savings account but use a big chunk of it to replace a transmission. Shortly after, a $5,000 medical expense rolls around and we no longer have enough in savings to cover it. Instead, we put it on a credit card carrying an APR of 16%. If we only make the minimum payment on the card, it will take us more than five years to pay it off and we'll end up paying $2,451 in interest.

Putting money aside ahead of time allows us to avoid credit card debt and interest payments.

Chip away at it

It's important to note that we did not come up with the money for these accounts at one time. It took us years of putting a little away at a time to get where we are. If you don't think you can possibly save money, why not start with a small goal, like $5 a week? Once your budget can accommodate that amount, raise it a bit.

Purpose of each account

Here's a rundown of our savings accounts and why they exist:

• Quarterly taxes: As a freelancer, I'm responsible for paying quarterly estimated taxes. Each time I receive a paycheck, I put a portion of it away in this account so the funds will be there when it's time to pay Uncle Sam.
• Emergency: For a long time, our emergency fund is where I directed the largest percentage of savings. Once it grew enough to cover a major event, I was able to focus more on the other accounts. If something big happened, like another pandemic or a job loss, this account holds the money we'd need to get through.
• Debt: In addition to a mortgage, we're still paying loans from college. I put money into this account each month and make one large payment toward that debt annually. Fortunately, the interest rate is low, and there is light at the end of the tunnel.
• Birthday/Holiday/Vacation: It seems that everyone in our family has a summer birthday, and every time I turn around, I'm trying to come up with gift ideas. This account exists solely to cover birthdays, money spent at holiday time, and vacations.
• Dental/Medical: We're fortunate to have decent health and dental insurance, but this account is home to an amount equal to our total annual out-of-pocket expense. Say one of us lands in the hospital, and we end up with a $100,000 medical bill. Our insurance covers everything but our out-of-pocket expense of $7,500. We don't have to sweat it because those funds are put away.
• House upkeep: We carry a home warranty that has been immensely helpful, but we're still responsible for some of the costs when the furnace breaks, the underground sprinkler system leaks, or the dishwasher needs to be replaced. We also draw from this account when we want to have a room painted or other cosmetic work done to the house.
• Auto upkeep: As the name suggests, the funds in this account are there to pay for any work we need done on our cars.
• House payment: This is our second-largest account and holds enough to pay our mortgage payment for months in the event one of us is unable to work.
• Miscellaneous: We use this account as a catch-all, a place to save money with no clear purpose. Say someone we care about dies, and we need to jump on a plane to attend a funeral. We'd use funds from this account to cover the expense. The cost of an unexpected trip doesn't really fit in any other category, so it's categorized as miscellaneous.

I doubt that most people need this many savings accounts. But after years of trying different budgeting strategies, it's what works for me. I don't feel guilty buying a gift when I know the money was put away for that very purpose. And I find that paying for things like car repairs stings a little less when the funds have been sitting there, waiting for something to go wrong with the car.

Life happens and expenses pop up. Savings accounts are there to help you cover those expenses and avoid high-interest debt.