If your monthly spending is a messy blur that never leaves you with enough money between paychecks, you might be trying to do too much from one account.
GOBankingRates polled 1,000 adults about their money-management strategies and found that nine out of 10 people have checking accounts, while nearly three out of four have savings accounts.
But is one of each enough?
Although cluttering up your financial life with yet another account might feel like the wrong medicine, it can actually be easier to manage several efficient and well-planned accounts than one that’s overburdened and untidy.
“From a financial advisor’s perspective, it can be a wise choice to create separate bank accounts for different buckets of your budget,” said Prof. Michael Collins, CFA of Endicott College in Beverly, Mass. “This helps to ensure that you stay organized, on track, and that you are making sound financial decisions.”
Organization Through Compartmentalization
All of the many budgeting strategies were designed with the same intention in mind: Assign a purpose to every dollar. When you establish separate accounts, you give every dollar both a purpose and a place, which makes it much easier to keep track of which of those dollars you’re supposed to spend on what.
“For example, if you follow the 50-30-20 rule, having separate accounts can help you stay disciplined and avoid overspending in one area by dipping into funds meant for another,” said Adrian Lawrence, financial advisor, chartered accountant and CFO of FD Capital Recruitment.
An Account for Every Bucket Can Provide Clarity and Accountability
Lawrence speaks of the popular budgeting strategy that allocates 50% of each paycheck to needs like housing and utilities, 30% to wants like entertainment and restaurants and 20% to saving and investing.
Dividing those concepts in your mind is a start, but assigning a single-purpose account to each can provide the clarity and accountability you need to implement your budget in real life.
For example, if you receive $1,000 per pay period and follow 50-30-20, the $300 you have for all non-necessity spending is isolated in its own home. If it drops below $150 before half that time expires, you’ll know at a glance that you need to tap the brakes. But if your latte money is mixed in with your gas money, rent money and the money you’re supposed to invest, you’ll never keep track of which is which.
Your Unmanageable Mish-Mosh of Money Needs Structure
You don’t have to use 50-30-20 for multiple accounts to make sense. After all, every budgeting strategy tries to do for your money what a divided tray does for your silverware drawer — partition the larger mass by type for organization and easy access.
“As one saving account gives you one big number, it is hard to keep track of where you should be or are in the smaller saving categories,” said Scott Nelson, founder and CEO of MoneyNerd.
When Cash Is Allocated, Problems Are Easy To Spot and Fix
Compartmentalizing your finances makes it easy to see when your allocation is off and to identify the correct course of action to fix it.
“Having separate accounts can allow you to make more deliberate decisions about your spending and reach your financial goals faster,” Collins said. “It helps you to prioritize and to ensure that enough money is going toward your needs and savings and that you are not overspending on wants.”
For example, if you have to pull from your investing bucket to pay your bills a few months in a row, separate accounts will make that imbalance obvious. Maybe your savings goals are too ambitious or maybe you’ve been too undisciplined with spending on wants. Either way, the problem will reveal itself when each bucket has its own home.
Multiple Accounts Can Build a Foundation for Financial Freedom
Organizing your money into separate, purpose-based accounts can provide big-picture clarity that will help you control spending-adjacent areas of your financial life like borrowing, investing and retirement planning.
“Separate accounts can help you keep better tabs on your spending overall,” Lawrence said. “If you’re trying to save money or get out of debt, knowing exactly where your money is going each month can be helpful in making adjustments to your budget. Having everything in one place can make it easy to lose track of where your money is going and make it harder to track your progress toward your financial goals.”
It’s not a magic bullet and it’s not for everyone, but spreading your money around comes with benefits that could hold the keys to financial freedom.
“Ultimately, whether or not you create separate bank accounts for your budget buckets is a personal decision,” Lawrence said. “There’s no right or wrong answer. Do what works best for you and your financial situation.”
More From GOBankingRates