Financial accounts are a modern day necessity. Most people have an account at a bank, if not multiple banks. At that bank they are likely to have a checking account, savings account, and even a CD. In addition, it is quite common for people to have multiple active credit card and debit card accounts. Unfortunately, each of these accounts adds a layer of complexity. One of my current financial goals is to simplify my finances – hence the need for a simple budget and fewer financial accounts. In this quest to simplify finances I have found that there are many reasons why multiple accounts are a bad idea.
Why Are Multiple Accounts A Bad Idea?
Nevertheless, There Are So Many Good Accounts To Have:
I have been encountering a lot off different account ideas lately:
Frugal Dad suggests we have an Opportunity Fund – great idea, I thought.
Fivecentnickel suggests we get an account for extended warrantees – hmm, that sounds good.
Helen Hunt advises you open a contingency fund – yes, I agree.
Most folks recommend an account for an emergency fund – absolutely essential.
Of course it is important to have a savings account to help you get the most interest on your money. You should also consider a Money Market Account. Don’t forget a checking account is important. Then you need an account at the local back
These accounts (all individually great ideas) all add up to create a complex financial system that is more likely to fail than succeed.
What Is The Solution To Feeling Overwhelmed By Multiple Accounts?
- Set up one fund. Call it ‘The Fund’. ‘The Fund’ is one fund that holds all your miscellaneous subaccounts. You can just keep track of the amounts on paper instead of opening completely separate accounts. Basically any time you need money to keep somewhere, you dump it in THE FUND and write the amount on a piece of paper. Your fund might have $15,000 and you know $10,000 is for retirement, $2,000 for tax payments, $2,000 for vacations, and $1,000 for opportunities. While there is only one physical account, there are multiple amounts in each one.
- After you get ‘The Fund’ money transferred into one account, cancel the rest.
- Start using just one card or switch to cash. Making four credit card payments every month is a hassle and could cause accounting mistakes. Choose the simpler pathway. Yes, you might miss out on 5% cash back on this or that, but overall you are in better control of your money if you have just one account.
- Decide if you really need both a savings account and a money market account. Interestingly, right now savings accounts are paying better interest than money market accounts. Typically, the opposite is true. However, you need to determine if in your case the interest difference really justifies managing another account. At this point in our lives we have said no, so we only have a savings account and not a money market account.
It doesn’t take long to get overwhelmed by all the things you need to do to organize your finances. But, financial organization is a habit of financially fit individuals. Having one account might mean you miss out on some customized opportunities, but in the long run simplifying is much better.
How many bank accounts do you have? When it comes to financial accounts, what is better – more or less?