Yesterday I got to do a segment on Studio 5 again
man, I love being a contributor on that show...
Oh, and just for the record, YES Brooke and I matched...again...NO it wasn't planned...again.
great minds just think alike I guess.
Oh, and just for the record, YES Brooke and I matched...again...NO it wasn't planned...again.
It was a FUN segment for me because I got to shock the world by introducing a new concept to most of you...
More bank accounts = easier budgeting for your family
Whaaaaaaaat?!
(sound of brakes screeching to a halt)
It's true! Watch the segment online HERE, or click to watch it below.
Now for the deets...
(brace yourself, this is a doozie of a post...)
(brace yourself, this is a doozie of a post...)
The "Lucky 7" Bank Accounts Every Family Should Have
When you file your important papers, you keep them all in the same filing cabinet. But are they in a big pile inside the cabinet? No, they are in multiple filing folders to compartmentalize, manage, and organize your life, and to help you keep track of things you need.
So if your papers aren’t in one big drawer, why would you put all your money in one big bank account?
Most families have 1 savings account and 1 checking account. This is common, normal, and while it very well could work just fine for many families, MOST families statistically have trouble making and keeping a budget.
Having only one or two bank account can make it harder to allocate and track expenses, and determining budgets. I'm going to propose 7 bank accounts your family should open that will help you organize your money, and potentially save your family hundreds.
WAIT!
Seven? What?
Doesn't that "hurt" me in some way? Isn't that confusing, expensive, or unnecessary?
Nope, nope, and double-nope.
If all your accounts are with the same bank (most of our accounts are with Chase in our family) then your online bank dashboard will have all your accounts handy in one place.
BUT
Even if your accounts are all open with DIFFERENT banks, you can use www.mint.com which is a free service that pulls information from all your banks and presents them on a single dashboard. Doesn't matter how many accounts you have open, doesn't matter what banks they are from, it shows you everything you need. The key here is to NOT LOSE TRACK of any of your accounts and/or money, so it's key to find a dashboard or online portal that works for your family.
And, did you know,
many banks will actually PAY you to open a checking or savings account!
How?
- You won't find these deals online usually, you need to make sure you're on that bank's mailing list to let you know when specials arise. Which bank? The more, the merrier! Here's a mailer I got just today in the mail:
$125? Don't mind if I do.
- ASK your favorite bank! Say, "Do you have any special incentives right now for opening an account through you rather than going to your competitor?"
- Sign up for email lists. I get emails from Chase all the time letting me know about promotions and deals.
Ok, so now you know the background, let's get to it! Your new "Lucky 7" bank accounts are:
1. Family emergency savings:
Purpose: For absolute, dire "we are going to lose our house next week if we don't do something" emergencies.
Rules and tips:
• Money should be automatically withdrawn from your paycheck every month (5%-10%) and deposited into this account. You should pretend that this money doesn't exist when considering your income.
• It needs to be an "out of sight, out of mind" account. Don't even bring it up when calculating your money as a family, and NEVER consider it as an option for pulling money out of when needing to pay for something...unless it's a literal life-or-death situation.
• You can open this in any savings account, but I recommend opening this account through and online bank like ING or E*Trade (HERE are lots of great options) because:
• It's much harder to withdraw money from (takes 3-5 business days to withdraw money from),
• It's "out of sight out of mind" because the balance isn't easily seen along with your other accounts,
• ...And sometimes the interest is better.
Note *It certainly doesn't HAVE to be ING or E*Trade (in fact, there could be better options out there now, we've had those accounts for years). Just pick a bank outside your regular bank so that the account doesn't pull up every time you log in to your regular bank. You really don't want to be tempted to touch the money in it. EVER.
Note *It certainly doesn't HAVE to be ING or E*Trade (in fact, there could be better options out there now, we've had those accounts for years). Just pick a bank outside your regular bank so that the account doesn't pull up every time you log in to your regular bank. You really don't want to be tempted to touch the money in it. EVER.
How much to have in this account:
• You should have enough to live on for 3-6 months (one year would be ideal).
• You should put between 10% - 20% of your earnings every month into savings, so you want to divide that percentage into two savings accounts I am proposing; this one, and the Family Regular Savings account (see below).
• Once that 6 month (or 1 year) goal has been met, the money can go toward the next savings account - but ideally you would never stop depositing into this account, even if you have to lower the percentage.
By having a Family Emergency Savings account that A) you automatically draft money to each month, and B) you NEVER pull money out of, you can effortlessly protect your family from the worst-of-the-worst circumstances.
2. Family regular savings:
Purpose: This is used for expenses you need/want to save up for - down payment on a house, new bedroom furniture, major home repairs, family vacation, new car, upcoming wedding, etc.
Rules and tips:
• Money is automatically drafted from paychecks to this account every month (5%-10%).
• This savings account can be at your normal bank. Try to find a bank that will pay you to open a savings account! You can get paid as much as $75-$150+, just read the fine print and make sure there are no hidden fees.
• You need to have a plan for the money in this account! Don't get in the habit of pulling money out of this account regularly - it needs to be for big purchases that require advance planning.
• Save up the full amount before spending. Ex: If you are anticipating needing to take $2500 out for a new car, you need to have an excess of $2500 in the account to immediately make up for the difference before buying the new car.
How much to have in this account:
• You need to save up the full amount for what you are about to purchase BEFORE buying it, so the total amount in this account will ebb and flow. However...
• ...You should, as a rule, always keep a balance of 3 months worth of living expenses in this account, so you can live off of it if needed for a short time before having to tap into your emergency savings.
By having a Family Regular Savings account you have a "holding account" delegated to hold larger sums of money which will help you save up for big expected or unexpected expenses, and protect your family in case you need to live off of savings for a short time.
3. Family checking:
Purpose: This is your "home base" account; the account where all paychecks/sources of income go initially. Your money starts here, then is transferred and allocated to other accounts. This is where you pay for minor car/home repairs, oil changes, utilities and all other bills (except for medical bills, more about this below), tithing/donations, and other "family" expenses. See HERE for checking options.
Rules and tips:
• All bills are paid from this account, preferably on auto-pay when possible to avoid late fees.
• Money shouldn't stay in this account for long, because it will be divided up and allocated to other accounts.
• Try to streamline the allocating of this money to other accounts by setting them up on auto-transfer.
How much to have in this account:
• Enough to cover all of your living expenses for the month, trying not to have excess leftover. Any excess needs to go to your savings accounts.
• Just read the fine-print with your bank to make sure you don't get slapped with any fees for not keeping a certain minimum amount in that account.
By having a Family Checking Account you have a "home base" account to hold all incoming money (that hasn't been automatically distributed to savings accounts) for the month. It makes it easy and simple to see exactly how much money you need to cover all your spending in one month, making organizing money and allocating spending and budgets much easier.
4. Wife checking:
Purpose: The wife's monthly budget drafts from the "family checking" account to this account every month. Everything she spends in the month gets paid for from this account.
Rules and Tips:
• The wife uses this money to cover her budgeted expenses for the month, which needs to be determined in advance by each individual family.
• If the wife stays home (like in my family, for example), she will most likely be in charge of more expenses (or vice versa for the husband) Ex: grocery shopping, babysitting money, lunch with the ladies, toiletries, home needs, piano lessons, pedicures, hair cuts, dog needs, clothes for her, clothes for the kids, school fees, etc.
• Once the money has been deposited into the wife's account, she can spend it however she wants. If she runs out of money before the end of the month because of poor budgeting, she needs to go without and spend more wisely next month. If she runs out consistently, consider revamping the budget to give sufficient to cover all budgeted expenses reasonably.
• These budgeted expenses can be described as things that this parent is regularly in charge of paying for. This would NOT include "family" expenses such as utility bills, home and car repairs, medical expenses, and large expenses like braces, new furniture, etc.
• These budgeted expenses should be paid for each month preferably using a debit or credit card, which then gets paid off by the money in this account at the end of the month.
How much to have in this account:
• Depends on your individual family situation...
• ...but only enough to cover the exact, full budget amount for the month. That way if the wife needs more money to pay for things, she can be held accountable for going over budget. On the flip-side, by having the exact amount in the account it's easy to see when there is money leftover to go into the slush fund (see below).
• A few guidelines for forming this budget:
• Grocery budget should be $100 per family member, per month.
• To calculate "other", add up what the wife spent money on for the last 3 months that would apply within the bounds of her "spending responsibility", divide it by 3 to find the average, then knock it down by at least 25%...because we usually spend more than we need to.
5. Husband checking:
Purpose: Same as wife checking. This is where the husband pays for his budgeted monthly expenses.
Rules and Tips:
• The husband uses only this money to cover his budgeted expenses for the month, which needs to be determined in advance by each individual family. Ex: Eating out for lunch during work (rather than packing a lunch), oil changes/car detail, entertainment for him, groceries (if he's the one to do the shopping in your family), date nights, getting his hair cut, buying clothes for work, etc.
• All the same rules apply as with the wife checking account.
• All the same rules apply as with the wife checking account.
How much to have in this account:
• Same rules apply as with wife checking.
By having Husband Checking and Wife Checking accounts this gives each parent autonomy to spend however they see fit while still being held accountable for the overall budget amount. It motivates them to be frugal where possible, because it allows for leftover money to go into the family Slush Fund (see below), or that money can be spent by them on something fun for themselves. These accounts help allocate spending responsibilities for a family, making "who is in charge of what" clear and concise, and makes setting and maintaining a family budget much easier.
6. HSA (Health Savings Account):
Purpose: This is a tax-free savings account built specifically to hold money to pay for any kind of medically-related expense, large or small.
Rules and Tips:
• Go to www.healthcare.utah.edu to fully educate you on how these work.
• HSA's work best with more affordable, high-deductible accounts. With lower-deductible accounts, most of your money is going to a premium each month. You pay it, whether you use it that month or not. With a high-deductible plan, you pay for only what you use and still gives you protection for catastrophic events.
• You will get an HSA debit card, this is what should be used to pay for EVERY medical expense - from a doctor's office co-pay or prescription from a pharmacy, to having a baby or paying off surgery.
• Why HSA vs a standard savings account? Any money deposited into an HSA is tax-free. For those who need a few thousand dollars a year (or more) to cover their family medical costs, this tax savings can be substantial.
• "An HSA is all yours. Whatever you don’t spend stays there from year to year, earning interest tax-free. It’s yours even if you change jobs; and once you reach age 65, your HSA turns into a retirement account.
• HSAs are available through banks, credit unions and insurance companies. Many employers now offer HSAs, as well. You may enroll in an HSA is you have an HDHP and no other health insurance. If you are enrolled in Medicare, you cannot contribute to an HSA, the Treasury Department says.
• If you change jobs, your HSA goes with you. The money in your account earns tax-free interest, just like an IRA.
• Young people in good health may benefit the most from an HSA, because they tend to have lower medical bills, and over many years the accumulated savings can be significant. Also, if you lose your job or are laid off and are collecting unemployment insurance, you can use your HSA funds to pay for routine health expenses and health insurance premiums, tax-free.
• People who have lots of doctor office visits, such as families with small children or people with chronic health problems, often pay more out of pocket through an HSA than through a health maintenance organization.(healthcare.utah.edu)"
• MAKE SURE to read the fine-print. Some HSA's are "use it or lose it" accounts, or have fees attached. Both of these things are unnecessary.
How much to have in this account:
• Some accounts have yearly maximums, so the account rules will decide how much you can have in there. Read the fine-print.
• This is very personal based on your family situation. Ultimately you need to have enough to cover all perceived medical expenses for your family for the year, without depositing too much extra.
By having a Health Savings Account this keeps family savings accounts full and organized, and ensures sufficient funds to pay for medical expenses. It prevents having to dip into the Family Regular Savings account to pay off medical bills, and is a great solution for affordable healthcare. It helps you plan and prepare for expected and unexpected medical expenses, allows you to only pay for the healthcare you use and need, all while giving you tax-free savings.
7. "Slush Fund":
Purpose: Optional 7th account. This is your 100% "fun money" account! This money does NOT go toward bills or "boring" things in any way...this is your reward for spending wisely and having money leftover from budgets at the end of the month, and for being out of debt. The money should be spent on something "fun" that you might not choose to (or be able to) spend money on otherwise.
Rules and Tips:
• You need a plan for this money. It could be for a new TV, vacation, a trampoline, or something else fun that your budget might not allow for otherwise.
- Example: For my family, we want to go to the 2016 Olympics in Brazil but we are working on building up our Family Emergency Savings right now, thus, we don't have any extra cash to start saving for the vacation. Spare money here and there goes into our Slush Fund (extra birthday money, leftover budget, etc.). While we only have $255 in there right now, that's $255! Of spare money! Our goal is to grow that over time so when 2016 hits, our vacation is paid for.
• Get your family involved on this goal. Have it be a community fund where any extra money gets contributed toward a common, exciting goal. Make a chart for your fridge, or put pennies in a jar to represent every dollar put in the account. Make it visual, fun, and exciting for the family.
• You should only put money toward a slush fund if debt is paid off (debt such as credit cards, student loans, and outstanding bills).
How much to have in this account:
• This depends on how conservative you are with your spending! This account only holds EXTRA, un-spent funds. The less you spend throughout the month, the more you will have in this account.
• This may build up very slowly. It may be as simple as $10 leftover in a grocery budget from the week, or $100 of a tax return that wasn't needed for other accounts, or leftover birthday money that a child wants to contribute. Think of it as your change jar that sits in your laundry room. Instead of throwing your 'spare change' in a jar, throw it in this account!
• Setting a goal for this money is key, so you know how much you need to have in this account before spending it.
By having a Slush Fund Account this encourages a united excitement for spending wisely as a family. It gives everyone a common goal to work for, and allows for a family to spend money on something 100% fun that they might not be able to spend money on otherwise. It encourages saving, budgeting, and delayed gratification.
Technically, the list could go on to 8 and beyond. But since it depends on how many kids this next one has, I will leave this as "additional accounts"...
8+. Kids' Savings and Checking accounts.
For every child you have, you should open them a
1) checking account and
2) savings account.
From day 1 you should be drafting a few dollars a year (or however much you can spare) into their savings account (saving up for college, their future wedding, a religious mission, etc.), as well as depositing all their birthday money into it. Once they are old enough to make their own money (allowance, work, babysitting...) you should encourage them to put at least 1/2 into savings, and to manage the rest into a checking account. Teach them to write checks, use a debit card, the whole 9 yards! Yes, even an 8 year old can understand these concepts if you teach them well enough.
Start your kids off on the right foot; being financially wise, secure, and comfortable with finances in the real world.
In terms of investing, saving, and credit cards...
I've had some questions from you all about credit cards, investing, IRA's, etc. I will not claim to be a professional so I'm going to refrain from giving much advice here! BUT...I will say this. My husband and I LOVE Mint for their comparative analyses and the options they provide. For us, it's nice to have all the info in one place to compare and look at. Here are some links that might help:
Click on the link below to see their info:
Credit cards
Checking
Savings
Brokerage
Rollover IRA
Contributory IRA
Ways to invest
And while I'm at it, here are more helpful links...
Auto insurance
Life insurance
In terms of investing, saving, and credit cards...
I've had some questions from you all about credit cards, investing, IRA's, etc. I will not claim to be a professional so I'm going to refrain from giving much advice here! BUT...I will say this. My husband and I LOVE Mint for their comparative analyses and the options they provide. For us, it's nice to have all the info in one place to compare and look at. Here are some links that might help:
Click on the link below to see their info:
Credit cards
Checking
Savings
Brokerage
Rollover IRA
Contributory IRA
Ways to invest
And while I'm at it, here are more helpful links...
Auto insurance
Life insurance
So, there you go!
See how I track my budget and spending HERE,
and get our easy budget tracking envelope printables below:
*UPDATE: Here's a comment that was left on Studio 5's website, and here is my response to it. I'm sure many of you have the same concerns, so hopefully this helps!:
"My goodness this plan is just not practical. Who has the capacity to work 7 bank accounts into their day to day lives. This is just too much. There are far easier ways to spend, save, and invest that require much less work. Many of the banks offer credit cards that give you the option to limit spending to a certain amount each month. I just can't imagine looking at 7 different accounts each week trying to make sure we are financially doing everything we should. Checking, savings, investments, and HSA are more than enough." - IanIan, thanks for your comment! I definitely see where you are coming from, this response is normal. However...if you were to try opening multiple accounts for your family, I predict you would sing a different tune. In today's age opening multiple accounts makes it no harder to track your money and spending, because of online dashboards! If all your accounts are at the same bank, you log into that one bank online and they are all in one place. If you are like my family and have accounts across the board, you can use services like www.mint.com that pulls all your info (from ANY bank) into one, easy to navigate screen.
If anything, having multiple bank accounts has simplified our lives! It hasn't made it complicated in any way. Everything we do is set up on Auto-pay and auto-transfer. My budget automatically drafts to my accounts each month, same with my husband, money automatically drafts to our 3 savings accounts (emergency, normal, and HSA), and the only account we physically have to deposit money into is our family checking...but even then, my husband's check is automatically deposited each month from his Payroll! Our Slush Fund is one that we have to manually put money into, but it's not a regularly used account so this is no hassle at all. Many families are trying this method and have the same feedback, feel free to check the comments out (at the end of this post). Thanks for your feedback, I do hope you give this method a try, it really will benefit your life! - Jordan
