Suze Orman Thinks You Should Have More Than One Savings Account. Here's Why
- Financial expert Suze Orman likes to help people reach their personal goals.
- She says that having multiple savings accounts could work to people's benefit.
Should you open multiple accounts?
Many of us have different financial goals we're working toward. You might be trying to save up for a home renovation, a new car, and a vacation all at the same time. And if you don't have at least three months' worth of living expenses available in your savings account, then you should also be saving to fill up your emergency fund.
When it comes to saving your money, you have options. You can open a single savings account and keep all of your money there. But financial expert Suze Orman says that opening multiple savings accounts is a better bet.
A good way to stay on track
Let's say you need $10,000 to fund a big home improvement project and $3,000 to pull off a family vacation. Your home improvement project might take priority over the family trip. But if you keep all of your money pooled in the same savings account, you might accidentally dip in to the point where you bump a more important goal for a less important one.
That's why Suze Orman says on her blog that having separate savings accounts for different goals makes sense. That way, you can track your progress toward each goal and prioritize where your money goes.
In fact, Orman says research shows that keeping goals separate helps people stay committed to those goals. So to that end, you might as well open separate accounts for each savings goal and see if that helps you make progress.
These days, online banks make it easy to open multiple accounts, and often, you can name your accounts as you choose. So you might have one account named "emergency savings," another named "home down payment," and another named "new car," with each one having funds set aside for that specific purpose.
A good way to protect your emergency cash
Another reason it pays to have separate savings accounts? You don't want to raid your savings to the point where you leave yourself without enough of an emergency fund.
Let's say you have $30,000 in savings, $24,000 of which is supposed to be your emergency fund. Over time, you might forget how much of that balance was earmarked for emergencies and take an $8,000 withdrawal to pay for a big home renovation. But in doing so, you might inadvertently dip into your emergency fund and then suffer later on because of that.
For this and the reasons mentioned earlier, it's just a good idea to have different savings accounts. Remember, your bank won't judge you for opening a savings account to buy a new TV or to take a trip to an exotic island and unwind, so if that's something you're saving up for, go for it.
Of course, you'll want to open different accounts within reason. If you have several goals of under $500 each, you're better off combining them into a single account you can label "miscellaneous goals." But for big goals, keeping your money separated this way could really work to your benefit.
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