I've struggled with overspending, both in the past as a textbook “shopaholic” and in the last year when I wasn't really watching my expenses like I had wanted or planned to. I sought out a different way of managing my spending, because obviously what I was doing wasn't working.
Then I read an article on Learnvest in which the financial planner suggested a client have many different bank accounts in order to cut down on extraneous spending. I started wondering if such a method could work for me, so I put it to the test.
My “Banking” Before
Before I had one banking relationship for everything. All of my freelance money, full-time paychecks, and side hustle stuff went into my Chase account, and then all of my bills and discretionary expenses came out of that same account.
I also had a savings account tied directly to this checking account. This was great for overdraft protection and when I needed money for unexpected car maintenance or a vet visit, but wasn't so great for when I went over on my “fun” spending. Way too easy to grab money out of that account.
How I Set Up Bank Accounts
After looking over my expenses, both fixed and discretionary, and seeing how much I wanted to put toward my credit card balances each month, I came up with a plan as to what type of accounts I would need.
I decided to keep my existing Chase checking account as the “income” account for my full-time paychecks, money from paypal, and rent checks from my brother/roommate.
Then I opened up a Wells Fargo checking account. This was going to be my “bill pay” account. I tallied up all my bills, divided that amount by 2, and had work directly deposit a portion of my paycheck into this account.
And since my bills are pretty regular, but never an exact match I put a $300 cushion into this account to cover any overages. Now, my bill pay is automated every month and I don't have to worry about it.
Seriously, I don't even have to think about it, and it's awesome.
Then I opened a separate checking account, which I manually deposit my set “fun” money budget into every two weeks.
I also opened up another savings account with AmEx that isn't tied to my chase account. Savings payments to this account are automatically deposited every two weeks, and I manually pay my credit cards out of the Chase account like I'd been doing.
How to Make Over Your Bank Accounts : Separate Everything
So, at first it took a couple of weekend mornings to get everything set up (accounts opened, switching automatic payments over, etc.) I won't lie, it was a lot of work on the front end, but it's so, so worth it.
My favorite part is having the bill account. Now I know how much goes in every two weeks, that all of the bills are covered, and it doesn't confuse me as to how much money I actually have when I'm looking at my “fun” funds. It sounds pretty simple, but having separate accounts lets me know which money is truly free to spend as I please.
This has been HUGE in helping me cut down on overspending.
I enjoy not having to worry about my bills and the millions of different due dates. Also, because a lot of my bills fall at the beginning of the month, things would be really tight the first two weeks, and then I'd make it rain the last two. Now since I am contributing the same amount (Total of bills divided by 2 for each paycheck) it is much more evenly distributed and the amounts I have to spend are more consistent and manageable.
I mentioned in my debt repayment post that I was able to cut my spending by 2/3rds.
I also automated contributions to the AmEx savings account, which is my new emergency fund account. Even on top of my aggressive debt repayment, I'm contributing 20% of my total month's salary to this emergency fund. I can move money out of it, but it takes 3-5 days to appear in my Chase account, so this helps keep this money solidly for emergencies only.
Before I was automatically moving a large amount of money into Chase savings, only to take it back out later when I needed it. “Robbing Peter to pay Paul” basically, no bueno.
And for those who asked, I now keep 1k in my Chase Savings as a money cushion for “rainy day” spending, like vacation down payments, or those irregular bi or tri-monthly expenses like contact lenses, or grooming for puppy Roo.
What I Learned
I also received cash incentives for opening the accounts. $50 for Discover, and $150 for Wells Fargo. I haven't received them yet, but when I do those funds will go toward paying off the remaining balance on my debt. A cool $200 never hurt ANYBODY 🙂 So, cash is an amazing reason to start your own “Banking Makeover” if you're looking to make a switch.Just be sure to look at the rules, you often have to keep a minimum balance or do direct deposit in order to qualify.
So, cash is an amazing reason to start your own “Banking Makeover” if you're looking to make a switch.J ust be sure to look at the rules, you often have to keep a minimum balance or do direct deposit in order to qualify.
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