During my last financial consultation, I mentioned to my clients that there are 7 bank accounts every family needs.
“Seven accounts!” My client’s husband softly said.
Having seven accounts seem to be a lot but I promise you’ll thank me later.
Most families have one savings account and a checking account. But how many times have you tried scrambling your funds around between those two accounts to make sure your bills were covered only to end up with transfer fees and your money still not where it’s supposed to be.
Well, let me relieve you of some that frustration and introduce to you…..
7 Bank Accounts Your Family Should Have
If you already have a bank in which you already have a checking and savings account established I would suggest just opening additional accounts there.
If you don’t have a checking or savings account established yet, that should be your first step. But before you go, do your due diligence. Many banks have certain criteria you have to meet in order to open a checking and/or savings account, and usually, it deals with your credit score.
So if your credit score is not ideal, you may be appearing on ChexSystems, that’s ok don’t let that discourage you, there are many banks that are willing to open accounts for you with less than good credit. (shhh I was in ChexSystems once upon a time)
But first, you may be asking…..
What is ChexSystems?
It’s a consumer reporting agency that helps financial institutions screen potentially risky account applicants by issuing reports that detail your past financial woes.
So if you have been flagged by ChexSystems, you might have some difficulty obtaining a bank account.
Luckily not all banks use ChexSystems. Here are a few:
- TD Ameritrade
- Axiom Bank
- Woodforest National Bank
- United Bank
- Southwest Financial Federal Credit Union
- Green Dot Bank
- Wells Fargo
- PNC Bank
- Capital One
Now that you have opening an account out of the way, you are probably wondering…..
How do you track 7 different bank accounts?
All of our bank accounts except one are with the same bank and due to the wonderful advancements of technology, online banking has allowed us to view all of our accounts in one place. So when we are paid we are able to directly transfer funds to their specific accounts and each one of our accounts ties into our budget….. Remember those different accounts that I mentioned here.
Just like we track our accounts, you will also be able to.
Now, let’s get down to the 7 accounts your family should have:
1. Emergency Fund (Emergency Savings):
I call this the “peace of mind” account. This is where you should at least have 6 months of expenses saved. This is your number one savings account and is for life altering emergencies ONLY. It doesn’t go to helping your family member that’s in need or for paying off YOUR debt. This is the money you put away and forget it’s even there because the only thing that should bring it to remembrance is a life changing event.
Rules and tips:
- Ideally, 20% of your monthly income should be directed to savings (emergency and general) and should be automatically withdrawn from your paycheck and directed into this account, once you establish your 6 months then you can drop it to 10% and add the remaining 10% to your general savings account.
- It needs to be “out of sight, out of mind”. That’s why ours is in an online account (Capital One) that we are unable to view with our regular accounts. I would recommend you doing the same.
- NEVER discuss or consider your emergency savings as an option for ANYTHING. This should only be discussed if it’s a……. exactly, life altering event.
An Emergency Fund will allow you to worry less about those unforeseen situations that may occur and provide a peace of mind by knowing you’re prepared. But I hope you will never have to touch this account.
2. Family Checking:
This is the “central station” of all of your accounts. In other words your main household checking account. This is the account where all your income is deposited and then transferred and allocated to your other accounts. You will use this account to pay for utilities, small repairs (car/home), vehicle maintenance, tithes, and any other expenses.
Rules and Tips:
- All bills are paid from this account, ideally on auto-pay so that way you are not forgetting to pay bills and incurring late fees.
- Transfers to other accounts should be automated. As soon as your pay is deposited into your account your money should be smoothly directed to it’s designated account. No more “ah I forgot to transfer money to the other account last night.”
- There should ALWAYS be enough money to cover your expenses for the month and to ensure that you don’t overdraw your account. You should be able to determine this by budgeting regularly.
Having a family checking account gives you a center, that makes it simple to distribute money to their specific designations. It will also allow you to keep track of bills being paid without all the extra confusion.
3. Family General Savings:
This is the savings account that you can tap into whenever you need it. This account is used to hold money that is pre-planned such as a down payment for a house, furniture, car, etc. and also to pay for unexpected expenses such as home repairs, tires, appliances etc.
Rules and Tips:
- After your emergency fund has been established for at least 6 months of living expense, you will automatically transfer 10% of your pay to this account every month, with the other 10% continuously going to your emergency fund.
- This is not your regular spending account, so don’t develop a habit of tapping into this account whenever you feel the need, that’s not what it’s here for. So make sure you have a plan for this account – it should be for larger purchases that have been pre planned or for a smaller emergency.
By having general savings account it allows you to save up for planned expenses and help pay for those unexpected expenses without altering the rest of your cash flow.
4. Family Checking 2:
Now, this is your spending account; yea you like the sound of that I know. You can use this account however you want. But ideally, this is where you pay for food, family entertainment, date nights, hair, nails, haircuts, etc.
Rules and Tips:
- This account is to cover other expenses that have been budgeted for that fall outside of your expenses that are paid out of the main Family Checking Account.
- The money in this account should not include family expenses such as utilities, home and car repairs, etc.
- Whether you want to get cash out or use your debit card for purchases, it should all come out of this account. So if you plan on spending $100 on groceries and you like to use cash instead of debit then that money should come from this account.
By having a second family account you will be able to put all your spending money in one account and use it a little more loosely than you would with the main family checking. That is not to say that you can go spend all this money on fun and forget to buy groceries. So still spend wisely.
5. Retirement Account:
This is where you save for your future, 10%-15% should automatically go into this account. Typically your retirement account will be an IRA account and if you have a bank like ours (Chase) you will be able to open up an account and conveniently setup transfers. If you aren’t able to do the IRA at this time you can just open another savings account and pay into it just like it was an IRA account. Once you have built up your savings you can convert it into a retirement account. However, IRA’s are limited to contributions of $5,500 per year for those under the age of 50 and $6,500 for those over 50.
Rules and Tips:
- Retirement money should be automatically withdrawn from your paycheck or checking account (10-15% ideally) and deposited into this account. Just as your emergency savings you should pretend this money doesn’t exist for there are often penalties for withdrawing from your retirement account early.
- There are many banks that offer IRA accounts, so do your research and find which one best suits your needs.
By having a retirement account you will be preparing to provide future financial stability.
6. Family Vacation Account:
One of my favorites. This is your vacation account, the account you use to pay for planned or last minute trips. This money should go towards transportation, lodging, food and any entertainment you may want to enjoy while on vacation.
Rules and Tips:
- This amount should be budgeted and does not have to occur monthly.
- Add to this account when able, so if you have extra money after paying all of your bills and adding to retirement then this is where you can put that money.
A Family Vacation account will help you get out of the habit of trying to use that last pay before you leave for vacation to fund your trip. This account will allow you to feel at peace and truly enjoy your vacation they way you are meant to.
7. Family Holiday/Birthday account:
If you have a large family and like to throw nice birthday parties like me, then you will absolutely find this account a blessing. This account pays for Birthday gifts, Christmas gifts, parties, etc.
Rules and Tips:
- Much like your vacation account this account comes after you have paid all your bills and paid into retirement.
- You do not have to put into this account monthly.
Family Holiday/Birthday account will allow you to enjoy the holidays stress-free. No more worrying about who we can get a gift or who can have a birthday party.
There you have it 7 bank accounts your family need.
But wait a minute….
You could actually go beyond 7, maybe you want your kids to have their own savings account which is actually not a bad idea. Or maybe you want to setup a college fund.
Whatever it is, don’ think you have to limit yourself to just these 7 accounts.
So go ahead and try it out, I can promise you one thing if nothing else, and that is by opening additional accounts you will be able to add a little more structure to your finances.
So tell me what accounts you be opening to help give your finances a better structure?
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