Different savings accounts for different goals (and MM question)?

**TheStreetCeo** · 07-21-2010, 07:35 AM

I'll answer your first question with regards to the multiple savings accounts and leave the rest to DisneySteve or one of those other guys or gals who often have great insight. I will say that you will need to be more specifc on what the 80k is for and what your debt situation is like before anyone can help you with that part of the question.

I have two ING savings accounts.

1. EF

2. Discretionary i.e. vacation, fun money, whatever

**jIM_Ohio** · 07-21-2010, 07:38 AM

If you can keep money straight, 1 account/1 pile for all funds would be best.
If you cannot keep money straight, using sub accounts would be advised.

**TheStreetCeo** · 07-21-2010, 07:56 AM

Originally posted by jIM_Ohio View Post

If you can keep money straight, 1 account for all funds would be best.
If you cannot keep money straight, using sub accounts would be advised.

Jim,

Why would one account be best? Are you saying you think it's best to keep your EF money in with your discretionary money?

**snshijuptr** · 07-21-2010, 09:47 AM

I use ING for my multiple savings accounts and they purposefully make it really easy for you to open as many accounts as you want. All have the same interest rate and you receive one 1099. It has really helped me track my progress toward various goals in a physical way.

**jIM_Ohio** · 07-21-2010, 10:24 AM

Originally posted by TheStreetCeo View Post

Jim,

Why would one account be best? Are you saying you think it's best to keep your EF money in with your discretionary money?

It's one pile of money.

For example if I am saving for a car, saving for a vacation, saving for finishing a basement, doing a backyard, and have an emergency fund, that money is all one pile with many functions. These functions have lots of things in common

If I am saving for all those things, I know of two things to be true:

1) Over time, my savings will have more than I need for any one of those goals
2) My free cash flow is high

Those two things then tell me
1a)- I can take risk with some of the money I do not need immediately
1b) I can predict the timetable of most of those expenses and the amount (more or less)
2a) free cash flow might be 25% of budget in these cases (if all those expenses are on the docket)
2b) My free cash flow can solve some emergencies if I am still working

So my high level system (or advice) if you will is to do the following
Consider all short/mid term money as one pile
when the amount of money hits "critical mass", you can take some moderate risk with a portion of the money you do not need within next 3-5 years.

The details of executing this are many... highlights

1) If you need money within 2-3 years, it needs to be liquid cash unless you KNOW cash flow will solve the problem (meaning next 3 years of earnings pays for expense without needing to sell mutual fund shares).
The risk in this case is "knowing" cash flow will solve problem
However the counter to this is the expense might go away if cash flow stops
example- if I need a new car, and have the 30k I need in a mutual fund which is part of my emergency fund, but I also know in 3 years I will be saving 30k from cash flow in budget, then I lose my job at year 2.5, I don't need the new car anymore because I am not working.

2) You need to create an accurate price of each expense you are saving for (short term expenses only) and plan to save 100% of that cost over a specific period of time.

For example if you want a car and it costs 36k every 10 years, then you set aside 36000/(10*12)=$300/mo. There is a line item of $300/mo and over 10 years that creates enough cash for the car purchase.
If I want to take a $3600 vacation each year, I add a line item to budget for $300/mo going to vacations.
If I want to add college expense to this, I add in the 180k cost over 15 years 180,000/(15*12)=$1000/mo

Add that all up its $1600/mo
if I want to take a vacation, I spend $3200 over 2 months (like plane tickets in advance and booking travel in advance) then spend last $400 the third month (from this one $1600 line item in budget). The other 10.5 months that $1600 is added to some type of savings.

In about 2 years the full cost of replacing a 36k car will exist in savings. It is not prudent to keep that much money in cash if I need the car in 8 years. Plus I have $1600 free cash flow each month.

Thus, all the money needs to be "one pile" then I create an allocation for that pile (like 50% cash and 50% investments) or something similar.

3) Timing is important. If college is lumped into this, you know a few things...
a) you go to college the summer after you graduate HS, not a year earlier, not a year later
b) you can choose when you buy a new car
c) you can skip a vacation, or downsize a vacation the year you buy a car or the years you are paying college tuition.

Meaning some of expenses are flexible, some have a fixed cost (it's easier to predict what a car will cost than what college will cost 5 years away from expense actually occurring).

It's not foolproof
but its one pile of money- make that pile earn as much as you can while still limiting your risk.

How you interpret the piles will depend on how your brain works, and how simple or complex this appears to you.

In case of OP they want to fund a house downpayment, a vacation and a car downpayment.

To apply this to them, here is what I would do:

1) assign an amount to each of those items.
a) 2400/year for vacations ($200/mo) for example
b) $48,000 house down payment over 4 years (240k house, 20% down, $1000/mo for 4 years)
c) $18,000 car over 5 years-60 months ($300/mo)

2) add that all up ($1500/mo)
In general, in any one month they can take a vacation without "saving" for it because free cash flow takes care of the cost. The full cost of the car is taken care of in about 12 months. Once that money is in the bank, anything they add is for the house savings... they could tap this cash "anytime" to fund the car need (without financing), then continue to add to house savings and even take a vacation 1-2X per year.
If all purchases happen within 3 years, then keep it all in cash. If OP expects they can delay a purchase it might be OK to put a small amount of the money at risk in bonds or something moderate.

3) The general flaw with this includes that OP wanted a car "down payment", and not the car paid for 100%. This is probably because the OP has a specific timeline (like current car will last only 2 more years, and they want house in 2 years too). Best advice here is don't finance the car (buy a used one for a portion of cash) and get the highest expenses taken care of first (house down payment).

Once the house down payment is 100% accounted for then look to fund the other goals.

The timing of when the expenses are "due" is an important variable to balance needs, wants and convenience.

**Coronet** · 07-21-2010, 10:46 AM

Originally posted by snshijuptr View Post

I use ING for my multiple savings accounts and they purposefully make it really easy for you to open as many accounts as you want. All have the same interest rate and you receive one 1099. It has really helped me track my progress toward various goals in a physical way.

That would make things simpler! I just tend to like the visual of having money in separate pots since it psychologically seems to keep me in better check with how much I have saved for each goal.

**MonkeyMama** · 07-21-2010, 03:20 PM

I find it much more efficient to have one savings account. Or maybe 2. But, the reason is that I want all my money earning the most interest possible. Some places will do sub accounts, which may be more what you are looking for. Otherwise, maintaining a lot of accounts, is way too much hassle, in my opinion.

I actually have 2 online savings accounts at the moment. If one bank starts offering more favorable rates, I can switch them around. But I will close an old account and open a new one, every couple of years, to chase rates around.

Right now I have money at Ally & Alliant credit union. About 1.5% interest, each (no minimums, fees, or anything like that). There is a thread here that lists the best interest rates, or you can do a search on bankrate.com. I'd start with these resources. I am partial to the A banks, myself. Ally actually has a good "no penalty" CD - may get 2%? I'd look into that, too.

I actually break up my savings into more "long term" and "short term." Actually, I do have a medical savings and an emergency fund savings too. I just track them in excel. Each savings bucket has a separate sheet, and I add money or subract from the sheet, as needed. The first page sums the total of all accounts, and I reconcile it to my bank balances. It's really pretty simple. This way I can keep track of all my savings buckets, but can move a big chunk of cash to the bank paying the best rate. I just check my total cash matches the sum of all my savings buckets, but the spreadsheet makes it pretty automated.

**disneysteve** · 07-21-2010, 05:59 PM

Originally posted by jIM_Ohio View Post

If you can keep money straight, 1 account/1 pile for all funds

Originally posted by MonkeyMama View Post

maintaining a lot of accounts, is way too much hassle, in my opinion.

I agree with both of these comments. I don't want a stack of 1099s to deal with at tax time. I have more than enough already. But keeping everything in one place requires you to be more responsible with your money and not over spend your vacation money and come up short on your house down payment, for example.

We are very good managing our money and don't find it necessary to split it up. We know what we can afford to spend on vacations, on dining out, on car repairs, on shopping and on everything else. We don't need it all divided up for us. We can handle that in our heads.

**littleroc02us** · 07-22-2010, 05:45 AM

I have 5 accounts myself. It helps to organize my plans and to set goals. Here is what I do:

1. Mortage checking account - For paying my mortgage
2. Regular checking account - Daily life account, I pull cash from it weekly to use for daily use.

3. Savings - Used to save money for large items like cars that I pay in cash or tv's, refrig, etc...

4. Emergency funds - Money for Emergencies that I never touch, except for that rainy day.

5. Savings account - For the purpose of contributing to Roth IRA's, it is automatically transferred to my Vanguard account.

**Fizgig** · 07-23-2010, 11:17 AM

I prefer to keep multiple savings accounts, ironically to help me spend money more than to save it. I can talk myself out of any purchase, and having discretionary savings separate helps me relax and use some of it for fun. For my larger accounts, I try to find the best APR, though none are that good these days. For the smaller accounts, I don't chase rates. Each gets an automatic transfer with every paycheck.

1) Emergency Fund at a higher APR online bank

2) House Account (yearly taxes and insurance, with some extra for maintenance and repairs)

3) Splurge Account (discretionary money for vacations, gifts, toys)

4) Clothing Account

I started a clothing account earlier this year, because I work in a professional environment but don't like shopping for and spending money on clothes. I'd always convince myself that spending money on clothes was wasteful, and meanwhile my wardrobe was getting more and more theadbare and making me look bad. This gives me a kick in the butt to dress better.

This works for me and I don't mind juggling a few 1099s at the end of the year.

**KellyB** · 07-27-2010, 04:34 PM

Savigns Accts

I do a litle of each. I have different savings accounts only for different savers (I have one for each of my sons, and one joint for myself and partner). But I needed to visually see the different accounts within that one, so I just have a very simple spreadsheet with the amounts I have "saved" for differnt categories such as vacation, EF, Car Repair Fund, Christmas, Home Repairs, Meidcal, etc. This helps keep it simple but I can keep straight in my head if I need x dollar for a new refrigerator if I have enough saved in the "house" fund. This simple spreadsheet has given me a lot of peace of mind, since I don't have to constantly try to figure out if I have "enough"! LOL

Kelly B

Different savings accounts for different goals (and MM question)?