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Could Multiple Savings Accounts Help You?

By Jimmy Turner, MD
The Physician Philosopher

Two days from now (6/10) is the LAST day to purchase Medical Degree to Financially Free – the only online course built by a doctor for doctors that will teach you how to create a cash flow plan that will pay down your debt, help you invest efficiently for your individual goals, and find the financial freedom that every doctor deserves!  Don’t miss out on your chance to enroll in the course.  Click here to enroll Medical Degree to Financially Free When I creating the MD to Financially Free course I wanted to include other financial experts from the outset.  I am a big believer in having multiple perspectives.  This is why I included bonus content interviews during the course with three fee-only CFP’s and an independent insurance agent I trust. One of the fee-only CFP’s I interviewed was Sarah Catherine Gutierrez from Aptus financial, and she is a big believer in multiple savings accounts. For someone like me who hates detail-oriented stuff, this sounded like a massive headache.  Yet, I have to tell you, I think there is profound wisdom in having multiple savings accounts.

The Benefit of Multiple Savings Accounts

There are several benefits to having multiple saving accounts.  Let’s highlight a few of them here.

1. Multiple Savings Accounts Makes Financial Tasks Automatic

Anything that makes “paying yourself first” easier makes me a fan quickly. This makes accomplishing your big picture financial goals automatic, and you get to spend whatever is left. Having money siphoned into a few savings accounts as soon as you receive your paycheck is a sure-fire way to find success.  We will discuss the various buckets you might consider creating below, but suffice it to say that this prevents you from stealing money from your future self. After the money is sorted into the various savings accounts, what you have left is a “spending account” where you get to spend that money down to zero each month.  Talk about a great way to experience guilt-free spending!

2. Multiple Savings Accounts Solves Variable Expenses

One of the biggest complaints that I hear from doctors who are having trouble getting started is how some “unexpected” variable expense halted their progress.  It usually goes something like this,
I mean… we were well on our way to creating our emergency fund, but then we were invited to a destination wedding for one our best friends!  It cost $6,000. Then, we lost all of our progress.
This may seem unexpected, but unless you found out the day before the wedding, this is something that multiple savings accounts can solve. If you know it is going to cost $6,000 why not siphon $500 each month into a separate savings account 12 months in advance to help pay for the upcoming cost?  You know it is coming.  And this is a stress-free way to save for it (so long as you have created the cash flow to allow for it).

3. Multiple Savings Accounts is Cryptonite to Your Worst Financial Enemy

If you are ever curious about the identity of your worst financial enemy, behavioral finance would teach us that all we have to do is look in the mirror. It is an unfortunate truth, but we all like to sabotage our own financial future.  One way to prevent this from happening is to ear-mark savings accounts for different needs. For example, if you have an account earmarked for “Disney Vacation” and you are putting away money each month toward this goal, you are very unlikely to raid this account to purchase a new television or go to a fancy restaurant. Why?  Because you are taking your family.  You. Would. Never. Steal. From. Disney! It is interesting that our brains are wired that way, but if you just have one massive savings account, that is what happens.  It gets raided for various things.  Soon enough you are eating into your emergency funds for anticipated expenses!

Structure of the Savings Accounts

The benefit of multiple savings accounts is very real.  What are some accounts you might consider creating?  Here are some common accounts others have found helpful:
  • Home Repairs – save 1% of your home mortgage value each month.  For example, if your home is $500,000 – then you should save $5,000 annually for home repairs.  Divide that by 12 and you know how much to siphon into this account each month.
  • Travel/Vacation – you might name this one Beach Trip.  Or Disney Vacation.  Or Annual Vacation Fund.  Whatever the name, the purpose is obvious.
  • Healthcare – if you have a Health Savings Account and plan on fronting the money each time a cost comes up, then a healthcare account may be helpful.
  • New Car Fund – You are kidding yourself if you don’t think you’ll be buying a new car in the future.  Whether that is truly a “new” car or simply “new to you” cars need to be replaced.  You might as well save for them regularly.
These are just a few examples.  You might have a different set of financial priorities.  Of course, that’s fine, but the benefit of multiple savings accounts remains true.

Creating Cash Flow is the First Step

Now that you have an idea of why multiple savings accounts is helpful and how you might set them up, we need to put first things first. It turns out that you can have as many savings accounts as you want, but if you haven’t created the cash flow to siphon into these accounts… none of the above matters. This is the reason that Medical Degree to Financially Free exists.  If you’d like to know how to create cash flow, make sure to enroll today.  The course closes on June 10th. In the course, you’ll not only get access to the course.  You’ll also get access to all of the following bonuses:
  • Access to a private Facebook group for accountability and community.
  • Weekly Live Office hours with Jimmy Turner, the creator of MD to Financially Free.
  • Bonus content interviews (including the one where Sarah Catherine discusses multiple savings accounts!).
  • Worksheets, calculators, and other tools to help you tailor your cash flow plan.

Take Home

Multiple savings accounts may be a tool you find useful.  It works for many and may save you some financial stress. Yet, do not put the cart before the horse.  The first step is to create the cash flow you need before you can siphon any of it into those accounts. Do you have multiple savings accounts?  Has this saved you some stress?  How did you determine how much to put into each account?  Leave a comment below.
TPP

6 Comments

  1. IM-PCP

    I love having multiple savings accounts. They are the best way to “hide” money from myself.

    I put away money every year into my car fund, and top off my house fund and vacation funds as needed.

    The vacation fund is the best stress reliever: I know I can do whatever I like for a trip, as long as it doesn’t cost more than what is in the account. And having everything paid for ahead of time means I don’t come home to large credit card bills, so the joy of vacation doesn’t get squashed too early.

    Reply
    • ThePhysicianPhilosopher

      It’s amazing how our brain will allow us to take money from a large savings account with no name, but won’t touch a savings account labeled “Disney” or “Beach Trip”

      Reply
  2. Dr. Gan

    I truly enjoy having multiple savings accounts, especially those not associated with a debit card. I put money in Marcus high interest bearing savings account and Ally bank high interest savings account, and just as the post above – it is the best way to “hide” money from myself. It is nice to have the money at stand by as a savings account – that way I have less stress with bills or any other expenses that may arise.

    Reply
  3. Mark

    I highly recommend this strategy. I use Capital One 360 Savings account. Any short term say 1-3 year expense that is either irregular and/or large gets an account and I just siphon over a small amount each month

    Reply
  4. Dr. Ricardo

    I have a taxable brokerage account with Vanguard that throws off 40-50K per year in dividends and capital gains. I set up an automatic transfer of all these dividends and capital gains from this account into a high rate savings account. On January 1st, I total the amount in that savings account and I set up a monthly transfer of 1/12th of the total into my checking account. This is a nice way of creating an income stream from my brokerage account. I’m going to pay taxes on all capital gains and dividends anyway so why not spend them (I’m 72 years old).

    Reply

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