Wednesday, June 8, 2016

How Many Accounts Is Too Many?

By its very nature, budgeting requires you to create buckets of money for different goals or expenses. You save X dollars for an upcoming vacation, Y dollars for some home repair, Z dollars for a new Tesla, etc. One reason many people fail when trying to stick to a budget is that they co-mingle funds. They might be budgeting $100 a month for going to restaurants and another $100 a month for clothing, but they keep that money in the same account.

One month, they might decide to go out for a really fancy dinner and end up spending $200. "That's ok," they think. "I'll just borrow from the clothing fund this one time. I'll make it up next month." Except they don't. Then when they need to buy new underwear, they wonder why they don't have any money, despite budgeting for it.

When money from different budgets is all lumped together, it's difficult to track spending and progress towards goals. When you start borrowing from one budget to another, it becomes almost impossible to track. That's why I prefer separate accounts for each goal.

These Days, It's Easy To Open Accounts

Just about every major bank or credit union offers online banking and there are also quite a few internet-only banks. All these places make it very easy to open new accounts from the comfort of your home. Electronic transfers are ubiquitous and make moving money between accounts or institutions quick and painless. As long as you watch out for accounts that might charge you fees, there really isn't a reason to use one account for everything any more.

We have 18 accounts (!) that I use for our budgeting. Here's what I use them for:

  • 3 USAA savings accounts - for clothing, gifts, and auto maintenance
  • 2 Capital One Investing accounts - new car (non-Tesla) and daughter's future car
  • 1 Capital One checking account - legal budget (need to get a will, power of attorney, and other legal documents drawn up)
  • 1 Capital One savings account - vacation budget
  • 2 Scottrade accounts - Tesla and home maintenance budgets
  • 2 credit union accounts - wife's checking and savings
  • 2 credit union accounts - checking account for daily use and a savings account for short term savings
  • 1 credit union account - savings account for life insurance budget
  • 4 Schwab accounts - 2 Roth IRAs and a Coverdale education account for retirement and college budgets plus one for our emergency funds

Not included in the list are the two 401(k) accounts my wife and I have with our employers. Longer term goals are saved for using stock market brokerage accounts while shorter term ones are in checking or savings accounts.

Am I Crazy?

Is eighteen accounts too many accounts? I obviously don't think so or I wouldn't be doing it, but your mileage may vary. The fact that I have gone paperless with all my statements makes administration quite a bit easier. Reconciling the statements takes a small amount of time, but even that isn't too bad because the statements all come at varying times of the month, so the workload is spread out. Additionally, some of the accounts are combined on a single statement, which makes reconciling easier.

Because each budget has its own account, it's very easy for me to see how much money I have for each budget item. It also helps stop me from "borrowing" from one budget to pay for another. I still have that option because the accounts are linked and it's not an issue to move funds from one to another, but doing so requires a positive action on my part. That alone is often enough of a deterrent to prevent me from doing it.

Look, I realize eighteen accounts may be too many for most people. I get that. I have no trouble keeping track of 18 accounts, but then, I'm very introverted and studies show introverts tend to be more detail-oriented than extroverts. The complexity of my set up doesn't bother me at all. In fact, I love paydays because I get to distribute money to all those accounts. To be honest, I didn't even realize how many accounts I had until I sat down to write this article. I understand there is also a good case to be made for simplifying your life and consolidating accounts. It all comes down to knowing what type of person you are and finding a method that you can use to reach your goals.

I suppose, objectively speaking, eighteen accounts might be a bit much. But it works for me. What about you?


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