When it comes to saving money—for vacations, friends’ weddings, a home down payment, you name it—you’re probably accustomed to pooling whatever you’ve set aside from your paycheck into a single account. But having just one savings account isn’t the only, or maybe even the best, way to win in the long run.
In fact, creating separate accounts for different goals may be more effective when it comes to training yourself to put away the necessary funds.
According to Los Angeles-based Certified Financial Planner Samuel Rad, who provides financial coaching and therapy to his clients, our brains work like filing cabinets: “Compartmentalizing your savings goals can help you better organize and process data,” he explains. With a separate account for each goal, “you can constantly measure whether you are on track or behind, making adjustments as you go.”
While he says this strategy works for anyone, it’s particularly helpful for those who have a hard time multi-tasking, and therefore might lose sight of the specific goals one general account is meant to serve.
Before you create your separate accounts, be sure to read the fine print. “Make sure you are not being charged fees for the various accounts,” says Travis Sollinger, a Certified Financial Planner and director of financial planning at Fort Pitt Capital Group in Pittsburgh. “Even small fees can undo any benefit of keeping your money separate.”
Once you’re clear on any stipulations for opening multiple free accounts (such as a minimum balance or direct deposit), the rest is up to you: Make a plan to start stashing cash in each account at a rate that aligns with the order of each goal’s importance in your life. You can often set up automatic transfers from your checking account.
Ultimately, separate accounts help us make more conscious choices in our financial lives and provide the necessary emotional foundation to stay motivated, says Certified Financial Planner and financial psychologist Brad Klontz.
“Separate accounts allow us to attach ourselves emotionally to the saving effort. We can picture a specific child in college, envision the ideal vacation, feel ourselves behind the wheel of that new car,” he says. “The associations and emotions attached to these specific savings goals and their separate accounts can significantly increase our saving efforts.”