Here's Why I Have 5 Savings Accounts

When it comes to managing my money, I try to keep things pretty simple. I've automated a lot of the process, making sure cash is moved into my brokerage account on payday and setting up automatic bill payments. 

But, although I am all about simplification, I actually maintain five separate savings accounts. While this seems like a lot, there are good reasons for this decision. 

Here's why I maintain five separate accounts

There's a really simple reason why I keep five separate savings accounts. Each one of those accounts is intended for a different purpose.

See, I have savings accounts for:

1. Emergencies: I keep about six months of living expenses in an emergency fund to cover surprise expenses or to help me pay the bills in case illness or a job loss prevent me from working. 
2. Vacations: I like to go on trips often, so I have a dedicated savings account earmarked just to fund my journeys. That way, I don't have to borrow or pay for big trips out of a regular paycheck. 
3. Car repairs or replacement: I know something will eventually happen to my vehicle, so I maintain an account to help me cover repair costs and help me one day purchase a new car when my current vehicle gets too old. 
4. Home repairs: As a homeowner, I know that appliances break and other issues arise. I want to be ready.
5. Big purchases: I periodically save for large purchases, such as for new furniture or landscaping work. I have this money ready to go in a savings account.

By maintaining entirely separate accounts for each of these different purposes, I can easily track whether I have enough money to cover the things I need. I don't want my emergency fund mixed in with my vacation account because it would be more difficult to tell if I have enough for my trips without making myself vulnerable to surprise expenses. 

I'm also less likely to spend my saved money on something else. Since I know my account is there to help me if something goes wrong with my car or if I'm ready to book a vacation, I'm not going to withdraw that money for other things. The account has a clear purpose, and unless I'm taking money out to fulfill that purpose, I will leave it alone.

If I had one big savings account, or even kept the money in my regular checking account, I'd be far more likely to just use it for whatever I needed at the moment. But by giving the account a job, I stop myself from this kind of careless spending. 

Could opening multiple savings accounts work for you?

Opening multiple savings accounts is a good idea for most people because there are lots of things you probably want to do with your money. You're more likely to accomplish them if you can track how you're doing at achieving your goals and stop yourself from carelessly spending that hard-earned cash.

Most banks make it easy and free to open savings accounts, so you have nothing to lose by trying out the idea of putting money into multiple accounts. You may just find that this approach works as well for you as it does for me.