How having 5 bank accounts helps me better manage my money

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When I started to get serious about my goals for my finances, I began by looking at where I kept my money. I kept most of my money in my checking and occasionally transferred some to my savings. I didn't like this.

It's a game-changer to have 3 checking and 2 saving accounts.

It's not nearly as difficult as you think. There's actually a method behind my madness.

Today I will explain what I do with each account and how they have helped me on my financial journey. Let's get started.

Checking and Savings Accounts

Each of my savings and checking accounts serves a specific purpose. Some of my accounts are for side hustles and others are for fixed or variable expenses. Take a look at the purpose of each account.

Fixed Expenses Checking Account

Here's where I pay my fixed, recurring expenses. Rent, student loans and car insurance are all included.

I set my pay to only go into this account the amount calculated (plus some change). I gave myself extra money as a cushion, because even though the expenses are "fixed," there is always the possibility that a utility bill will be higher than expected or a quarter expense may come through. I didn't want an overdraft charge.

Checking account for spending money

This account is where I pay my credit card bills, including my daily spending, such as groceries, gas, dining, shopping, and other 'fun' things.

My paycheck is also set up to automatically transfer a certain amount into this account. I don't have to manually transfer any money. It's easier to monitor my monthly budget by using one account. Paying my credit cards weekly helps me stay on track.

Checking account for business expenses

I do a few side jobs, which brings with it additional income and expenses. I keep my personal finances and my business finances separated as this helps me track my side incomes and any business related expenses.

As a freelancer, I am also responsible for self-employment taxes. The feature in my business checking account automatically deducts a portion of income from my earnings to pay my estimated taxes. This saves me time and stress.

Savings account for emergency funds

I sleep better at night because of this savings account. It's not touched, but it helps me sleep at night knowing I am prepared for any unexpected expenses.

Experts recommend that you save at least three months' worth of living expenses. Calculate your monthly essential expenses to find out your number. You'll need to calculate your monthly expenses, which include things like groceries, housing, healthcare, and utilities. Everybody's number is different, as it depends on their situation. However, having a fund for emergencies is always a good idea.

It took me a while to get this going, but with a combination of tactics I was able reach my goal.

First, I had my pay automatically deducted from this account. I then chose a high yield savings account that allows you to earn high APYs on your balance. It may not seem like much at first, but your interest will increase as you grow your balance. You can reach your saving goals quicker and without any extra effort. My balance is growing even though I haven't made any additional contributions.

You might want to consider CIT Bank Savings Connect, which -- as of the date of publication -- offers a 4.5% annual percentage yield. It's a great way to grow your emergency fund passively every month to try to keep up to date with inflation.

Rainy Day Fund Savings Account

Rainy days, vacations, weddings, car troubles... these are just a few of the scenarios that you can use to justify having a rainy-day fund. You can avoid financial strain by setting money aside for fun activities.

I also store my rainy-day funds in high-yielding savings accounts because I want my money to work for me. I keep these funds at Ally, who has a nifty'savings-bucket' feature which tracks your progress and allows you to divide your goals into buckets. You can still earn a high APY for the account balance. Every time I make a payment for one of my buckets I pay it off with my credit card and transfer the money to my checking.

Benefits of multiple bank accounts

Multiple accounts have helped me achieve my financial goals on more than one occasion. Take a look at the details.

It helps me to stick to my 'budget.'

It is exhausting to track and categorize every expense. This is one of the main reasons I like the multi-account system.

Like the 50/30/20 system, I have my paychecks set up so that a certain percentage goes to each account with a specific purpose. This allows me to easily track how much money is available for spending and what is off-limits.

I can reach my savings goal with this app

Before I had multiple account, I would deposit my paychecks directly into my checking and transfer some to my savings. In reality, I was busy with another task and the money stayed mostly in my checking account. I would then spend it instead of saving it.

I reached my savings goal and more by dividing my pay and assigning each part a purpose. When I did not'see,' the extra cash in my account, I was less tempted to spend it and I didn't notice any major lifestyle changes. I had to be more careful with my spending.

Stops me from dipping into the water

I am less likely to be tempted by a quick transfer if I have my money spread across several accounts at different banks. It was so easy to transfer money from my savings account to my checking account when I was younger. The funds are still available, but I have to wait and do more work, forcing me to consider my purchases.

Earning a bonus on your bank account

In all honesty, it was the bank account bonus that initially swayed me to open multiple accounts. Bank account bonuses work in a similar way as credit card sign up bonuses to attract new customers. There will usually be a minimum deposit or balance requirement within a specified period and you will then be awarded a bank account bonus.

Bottom Line

It is not necessary to have a certain number of accounts. It's more important to do what you find most comfortable. Keep it simple if you find multiple bank accounts confusing and don't want to complicate your finances.

If you are looking for an alternative method to what you currently do and it's not working, you might want to give this a shot. Multiple bank accounts have helped me achieve my savings goals and stick to my budget.