Payday lands and your brain goes, “Hey! We’ve got money! Let’s get our spend on!”
But not so fast. Take a beat.
You’ve got financial obligations that have to be met and you want to make sure those are taken care of before you tap into your disposable income.
Having dedicated bank accounts for your spending can be a way to get all of those obligations met, painlessly and on time.
So here is the cash flow system I use to control spending. It might work for you too.
Household account – account where the paycheck lands.
Bills and Subscriptions – account where you fund the recurrent payments like utility bills, streaming services, car insurance, and gym membership.
Mortgage/Rent – where you fund your mortgage or rent payment. Nothing else should ever land in this account. It gives you a record of every payment you’ve made, when, and when your mortgage company or landlord accessed those funds. If you’re a renter who may apply for a mortgage, having this easy-to-see bank record of your rental payments will make the process easier.
Sinking funds – if you don’t keep these funds in cash envelopes like I do, then stashing them in a separate interest bearing account is a good idea.
Debt Management – where you stash funds to cover credit card payments, and any other debt payments you need to fund. Credit cards, loans, and payments you owe to accounts like the doctor or dentist, would go here.
Investment account – account where you put money to grow over 5-10 years such as a retirement account, brokerage account, or 529 education account.
Having multiple accounts helps you allocate money for specific purposes, which makes it easier to monitor and control your spending. However, having too many accounts can become cumbersome to manage, so it’s essential to find the right balance based on your financial situation and preferences. Additionally, always consider any fees associated with maintaining multiple accounts and ensure they align with your financial goals.
Some banks like Capital One have savings and checking accounts that are free no matter your minimum balance. Others like Chase Bank charge between $4.95 and $12 for each account, or may be free if you keep a specific minimum balance in your account.
