Right Savings Account and Organize Spending Plan
A few basic financial decisions about banking and credit card use frequently missed.
Deciding upon a savings account seems so basic, as well as selecting credit cards. Yet I find myself always providing recommendations on how to choose a better savings account that provides higher interest rates and how to organize your cash flow system to save you time, utilizing credit cards.
I never imagined that over 90% of all new clients I have worked with are not utilizing a high-interest rate savings account. I spend quite a bit of time understanding a client’s “system” for which bank accounts they spend from, which accounts they move money between, where, and if, they are saving on a regular basis and how many accounts are utilized.
Once I understand someone’s system, I can automatically understand if they are organized, disorganized or they just set up accounts as needed and didn’t really have a plan. In any of these situations, we assist with identifying whether you have a good system, how to tweak it or especially with a savings account, how to make more money on your own money!
The basics I typically find myself recommending for savings accounts are:
- Have a basic savings account that is tied to your bank account for short-term needs, unexpected needs. The amount to have here will vary depending on what is going on in your life and your upcoming needs. I usually start with 1 month’s expenses plus anything you need to pay for in the next month.
- Have a high-yield savings account that allows you to earn a higher rate of interest and hold your emergency funds here along with other things you may be accounting for such as quarterly or annual expenses (taxes and insurance as examples). Most of these types of savings accounts are online only. Look for those that do not have minimums, fees or short-term offers.
When it comes to one’s cash flow, the way in which you spend, most people hate budgeting. There is a group of people; however, that are very diligent, organized and track their spending religiously. That is not most people.
I have recommended a few different approaches, depending on the client’s interest, on how to save time and not budget, yet understand and be aware of their spending.
Zero-based budget Here, every dollar has a job that is benefiting something you need or want. We determine what it costs you to live so you have that amount of cash on hand, then we will spend (or recommend) how to use the remaining cash. At the end of the day, you can spend whatever is in your main checking account because we have recommended you save elsewhere and set up automatic transfers to other accounts such as emergency savings, investment accounts and retirement plans.
- Bank accounts and credit cards for different purposes Here’s one of the many ideas I have shared with clients.
a. Main checking account is where bills are paid from, those things that are mandatory (mortgage, rent, utilities, phone bill, internet, gas for your car, etc.)
b. Transfer remaining funds to a separate checking account or credit card for all discretionary spending (groceries, out to eat, entertainment, app subscriptions, personal shopping, Amazon purchases, home maintenance, etc.
c. Credit cards: Clients that are not spenders and can pay off their credit card(s) every month should utilize the credit cards offer. Use a few credit cards and assign a purpose for each. I also recommend a separate credit card for your hobbies/travel.
If you set up various bank accounts and/or credit cards as mentioned above, you can review total spending quarterly or annually. It’s the discretionary spending that gets everyone and it’s easier to go through just those transactions to see where you could spend less, if needed. The big ones that always jumps out are the various app subscriptions and other subscriptions that are not being utilized.
Cash flow is typically a subject clients don’t feel the need to address; however, there are always ideas and small adjustments that can make a world of difference in building one’s wealth without feeling like you must budget and always track your expenses.
