Why Dedicated Accounts Work

Josh Smith

If you have trouble splitting up your money and budgeting, here’s a little secret that will help you save money, spend smarter and avoid nasty fees that come with mismanaging your money -- dedicated accounts.
Think of it this way, if you sit down to watch TV in the evening and you have a bag full of Doritos in front of you, how likely is it that you’ll finish the entire bag in one sitting? Pretty likely.

Now imagine all of your expenses and savings have to come out of the same bag of money? Why would you expect a different outcome?



To get started I recommend at least three accounts:I switched to this method about three years ago when I found out I could get an interest rate reduction by paying a large student loan bill from a checking account at the same bank and by opening up a high yield online savings account. After a few months it became apparent that putting my money in dedicated accounts was the smartest personal finance decision I made.Thankfully the fix is as easy as putting your chips in a bowl--simply open up dedicated accounts for saving, paying fixed expenses and for everyday use.

1. Primary checking account for everyday expenses
2. Separate checking account for fixed expenses like car and student loans
3. High yield savings account for emergency fund and general savings

By keeping your money in specific “bowls” you know at a glance how much you have left—often times you can split your checks across a few different accounts when you do direct depositing. After you do that, set up autopay and you can essentially set and forget your other two accounts (fixed expenses and savings).



The final part of this is to make sure and evaluate your distribution every 3-6 months or whenever you get a raise so that you don’t end up with too much money flowing in and out of your primary checking account.Since now you’ll have more accounts, check to see if your bank will let you link to other accounts (so you can see them in one place) or sign up for a tool like Yodlee Money Center or Mint.com to stay on top of and view most/all of your accounts. This will make it easy to know what you have left without visiting five websites every week.When it comes to your high yield savings account, make sure it’s an account that won’t make you wait a few days to withdraw money. For me, it takes three to five days to transfer money out of my savings. I also don’t have a debit card attached to it—and this is something I recommend—mainly because I don’t want to be able to use it for everyday expenses or to splurge on that new HDTV.