Blog Post #3 – Setting Up Your Accounts

Setting Up Your Accounts

Everyone should at least have 3 different accounts with their bank. These 3 accounts should be your spending, savings, and emergency. This is a good base for someone just starting out and looking for some direction, or looking to simplify what they currently have. Let’s break it down.

Emergency

This account will be super important to you on your financial journey because things go wrong in life. Having a solid emergency fund will keep you grounded for when those problems happen, and they will happen. Cars break down, phones break, hospital trips come with bills, and we could go on and on. But this account is for nothing but emergencies. No vacations, upgrading your phone, dinner and drinks, none of it.

Most personal finance people recommend having about 6 months of reserves in this account, but for newbies we’ll keep it simple. Starting out, and what Dave Ramsey recommends, is having a $500 emergency account. This  could seem like a lot or a little but it will definitely come in handy at some point. This number can always be bumped up but it is important to not take from this account unless it is an emergency, hence the “Emergency Account.” This account can also be set up in a High Yield Savings Account to earn extra interest! Putting even 1% of your income per month into this account can help it grow slowly without noticing.

Spending

This account should be what you’re using to pay your mortgage/rent, groceries, utilities, food, personal spending, or any money that you’re spending daily/monthly. What is in this account is what is leftover after allocating to your Savings and Emergency Accounts.

Saving

Lastly, this account is for saving up for bigger purchases and stocking up on cash to invest. Savings accounts can be used in many different ways but mainly to build a solid financial foundation to eventually buy a house, new car, or make money with your money by investing.

Multiple savings accounts allow for saving up for individual purchases rather than just one lump savings account to pull from. For example, if you only had one savings account and your goal was to save up for a $5,000 vacation, you wouldn’t get to that $5,000 and just completely clean out your bank account. This wouldn’t allow you to keep building your financial base, but unfortunately this is what many people do. This is why having a main savings account and 1 or 2 other savings accounts for specific purchases can be very beneficial.

Your savings account should be set up in a high yield savings account to earn interest on your money, just like your emergency fund. Once you get to a solid number in your main savings account, having it sit there and only earn a small percent of interest does not do much for you. This is where you can begin to explore the world of investing which I’ll get into later on. Investing is where you build real wealth and what I’m currently doing with Index Funds, Real Estate, and owning businesses. Building a strong financial foundation with these 3 accounts will help you get there.