I have always spread my money around in multiple accounts. I use multiple checking, savings, and investment accounts, all marked for different purposes. Some are at the same institution, but I also use several different banks, depending on my needs. When I started making money years ago, spreading it around was simply the easiest way for me to track my spending and make sure that everything got paid out of my tiny salary. I never thought that this was a particularly special or great idea until recent events showed me just how smart this idea really was.
A thief stole my debit card number and drained the checking account to which it was tied. Fortunately, because my money was spread around in several accounts and none of my other accounts used that debit card, I was able to transfer money from other accounts to the compromised one to cover any shortfalls until the bank got everything straightened out and returned my money.
When the same thing happened a few weeks later to a friend who had all of her money in one account, she was devastated by late fees and bounced check fees that her bank would not reverse. All of her money was gone. She had nothing for weeks until her bank reluctantly agreed to replace her money. I couldn’t help but think that for a strange quirk of financial management, I could have been in the same situation. I saw that my method reduced a problem that could have become a financial disaster to a mere inconvenience.
This close call with financial disaster made me think about my tactic of spreading money around and what other benefits it has given me over the years. In addition to the debit card fiasco, keeping multiple accounts at multiple banks has cut my risk of suffering hardships due to identity theft in other ways. Recently, one of my banks had their computer system hacked. While nothing has come of it (yet), should someone get my information they cannot destroy my finances completely. They can wreck what I have at that bank, but they can’t get to the others. If I had all of my money in one institution and this happened, a hacker could wipe me out with one keystroke.
By far, the biggest benefit to spreading it around is how easy it makes financial management. On payday, preset amounts of money are directly deposited into various accounts, each marked for specific purposes. The first chunk of money goes into my 401k and IRA. Out of sight, out of mind savings means I never spend the money I’ll need later. I don’t miss it because I never had it to begin with. The same is true for the money that is deposited into my two savings accounts. One is for my emergency fund and the other is short term savings for travel, appliances, cars and Christmas. I don’t see that money, so I’m not tempted to spend it. It goes into the accounts and waits for me to need it.
The remainder of the money is deposited into two checking accounts. The first is for paying the bills. Mortgage, insurance, taxes, and utilities all come out of this account and I don’t touch it for any other spending. I determine how much I need to deposit each payday by adding up my yearly expenses in these categories and dividing that number by the twenty-four pay periods in a year. It took a little work to find this number at first, but now I only need to make minor adjustments as expenses increase or decrease. I simply change the amount being deposited and rest easy knowing that my bills are covered. It may mean less money for fun, or that my travel savings gets reduced a bit, but I know I won’t fall short when a big bill is due.
The other checking account gets whatever money is left over and it is for groceries, gas, daily expenses, and fun, frivolous things. I always know how much I have to spend in my daily life because the bills are paid from another account and savings is already taken care of. I never stand in a store and think, “Well, I have to pay the phone bill and the water bill, so that will leave me with $X. And then the insurance is due. But I need to put some in my IRA. Can I afford this item?” I’m spared those mental gymnastics because whatever is in that daily account is fair game for spending without fear of missing a bill payment or shortchanging my future. Spreading it around has made it much easier for me to track my spending and my savings.
Keeping multiple accounts at multiple financial institutions also makes me a better consumer. I am in a better position to take advantage of favorable policies and interest rates. When one bank where I had my savings dropped their interest rate, I quickly transferred a large amount of that money to my other bank that was paying a higher rate. When the bank where I had my daily checking account started charging for checking, I moved that money to the bank that had my other checking account. When I’ve told branch managers of my system and why I’m leaving them, I’ve often been able to get “grandfathered in” to the old policies so that they can keep my business. I’ve never felt “stuck” when a bank makes an unfavorable change because I know I can easily move my money to another bank with more favorable policies. I also use that leverage to negotiate for better treatment at the offending bank.
Certainly it’s not wise to spread your funds around to so many accounts and banks that you don’t know where anything is and you can’t keep track of it all. Or to spread your savings so thin that you can’t capitalize on the interest a larger balance earns. However, having multiple accounts has some hidden advantages that I didn’t realize until circumstances forced me to think about it.
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