Bank accounts are an account in a bank or other financial institutions, where a person stores his assets for safekeeping. Having a bank account is very important these days and it is never enough to have just one account.
Some people have six bank accounts which they are using on a monthly basis. There are also some people who have more than that number. The number of accounts usually fluctuates depending on the individual’s daily living.
Let us see why it may be important to have six bank accounts, or maybe more.
Adding structure for Financial Plans
In order to be successful with your personal finances, having a proper structure set up for them is very important. Some people spend their whole lives with just a minimum of two bank accounts. For example, one is a Savings account and the other is a Checking account.
In such a system, the money is usually being directly deposited into the Checking account. Thus, it is very common for a person to use that account for paying their bills. By the end of the month, if there is any amount left in this account, the person then usually transfers it into the Savings account.
In such cases, there is typically no room for growth left for the person. The person will surely end up spending everything rather than saving it. Also, such a person will be happy as long as the balance in their account does not turn negative. This is not the way of managing finances.
However, it might be hard to believe that this is the way how most people are actually managing their finances. But there are certain people who know better. These types of people usually manage their finances using a minimum number of six bank accounts. Sometimes, this number can also increase depending on the person’s needs.
It is also important to know how the system of people with six bank accounts is set up. Let us take a look at it to improve our understanding of the system.
The Six Bank Account Setup
In this setup, the first account is usually the Checking Account. This is because, the pretax money is taken out for certain services like health insurance, retirement, and certain health savings accounts, are directly deposited in it.
It is advisable to move your money at the very beginning of the month. It is usually better to equally distribute the money into each individual Savings Account. Moving the money at the beginning helps a person stick to a budget for the remaining time of the month. This system is very easy to maintain if you have a monthly budget set for your financial plans.
Usually, it is very common to see people managing their money in a backward direction. People who follow this system deposit whatever amount left at the end into their Savings Account or any other liabilities. Overspending becomes very easy which is the only problem with this type of method. People usually end up spending everything because the money in a Checking Account is easily accessible.
So, if you move your money in the beginning, it becomes almost impossible to overspend. When such a situation arises, it is very important to maintain a strict discipline in using Credit Cards. It is always a better option to leave the cards at home when you go out.
A Vehicle Account
A person should always move a little portion of their funds from the Checking Account to the Vehicle Account. This fund is for use only on the maintenance of a vehicle or for purchasing vehicles in the future. There are some people who prefer buying vehicles using hard cash. Also, there are others who drive really old vehicles which from time-to-time need lots of maintenance. Thus, having a separate account for spending only on vehicles is very effective.
Such an account will also ensure that you never have to use a credit card for spending on any vehicle requirements.
A Vacation Account
The third Savings Account is a Vacation Account and is only used for going on trips and also spending on these trips. This is, by all means, everybody’s favourite account, and a person should deposit money in it each and every month diligently. By having this fixed amount, you will be able to use it while going on trips. That too, without giving a second thought about spending a huge amount.
In this way, you will be able to enjoy your vacations peacefully. You will also not have to worry about the pending debt of any credit card after coming home. People love their vacations and so it should be a top priority to keep this account funded at all costs.
Savings for Emergencies
The fourth Savings Account is typically for emergencies and expenses for six months to a year. This is a very important account and should be fully funded at all costs. You will also gain higher interest if there is more money in the account.
It is important to remember that this Savings Account is not an investment. This account is for protecting a person in case of sudden emergencies or certain unexpected expenses. It is better to think of the account as Insurance for Life.
The difference between insurance and investment is that a person’s insurance costs money, whereas investments are a way for a person to make money. Therefore, this savings account should be considered as an investment.
Account for storing ‘Fun Money’
The fifth and sixth savings accounts are used for storing fun money. This is the money which you can spend without feeling guilty. You can use this money to do anything you want, like going to expensive restaurants or spending it on beauty salons.
This is a good way of saving money for fulfilling personal pleasures. With these accounts, you won’t have to think twice before making any unnecessary or expensive purchases.
In Case of Debt
If a person is in debt, their account structure may tend to look a little different. This person will surely be wondering where his vacation fund went. Sometimes, these people may not be able to go on vacation for years.
In this situation, it is better to create a separate account for collecting the debt amount. It is also better for these people to sacrifice huge expenditures and unnecessary vacations.
Depending on the goals you have set for yourself, you can increase or decrease the number of accounts. This type of structure works very well in helping you manage your money. It is important to set a routine on a monthly basis to transfer the money into different accounts. This will help you in making a better and brighter future.
It is also important to have certain side jobs to fund these separate accounts at a faster pace. You can store all of the money earned from side jobs into the Savings accounts. In this way, you will be able to achieve all your goals and craft a better future.
So, this is why it is better to have six or more bank accounts, rather than just one.