If you are asking yourself,” how many bank accounts should I have?” I can almost guarantee you that you have way too many. While this may seem like a minor and benign issue let me assure you that it is not.
In my experience I’ve noticed an almost linear relationship between people with too many bank accounts and people who struggle financially.
Why are having many bank accounts a problem?
For most people, having too many bank (and investment accounts) leads to people ignoring their accounts. Why? Because complication leads to confusion which in turn leads to neglect. Who wants confusion in their life? Nobody. As a result, those with too many accounts ignore their money. How can you figure out what to do with your savings if you don’t know where it all is? Unless you like the idea of spending your retirement “SUPERSIZING” orders of soft drinks and fries, ignoring your money is not a good option.
What about the need to set up accounts for various financial goals?
It’s great that you recognize your various financial goals but you don’t need a new account for each goal. Think about it. Do you have one closet for your summer clothes and one for your winter clothes? Probably not.
You can use one bank account to “closet” the money that you earmark for short-term financial goals. This is by far a better idea because it will save you time and reduce confusion. You’ll have one bank account and one bank statement to watch and manage. You can still manage various short-term goals by using a good budgeting software package instead.
Note – differentiate please between banking accounts at banks and investment accounts at banks. It’s OK to have one checking account – maybe two. But it’s usually a terrible idea to buy investments in banks.
So how many bank accounts should you have?
The vast majority of people need only one bank account for their short term goals. There are two exceptions.
1. If you have a spouse and he has vastly different spending habits than you do, maybe you can set up two accounts. But I’m not a fan of this. The only time this makes sense is when the couple argues so much about money that the only alternative to having two accounts is divorce. If that’s your situation, by all means, get another bank account.
Second Note: No matter how many bank accounts you have, remember to reconcile them every month. It’s not that difficult but it’s super important. Thank you.
2. The other case where it makes sense is when you own a small business. In that case, open one business checking account and another personal account. This is very important because it helps you separate business from personal expenses.
Remember, a bank account is not a long-term investment – at least it shouldn’t be. You should only keep money in the bank that you will need to spend over the short-term. As such, it doesn’t matter if the interest is very low. You’re not going to keep the money in the bank all that long. The added benefit of earning a little bit more interest at another bank won’t make much difference to you.
The benefit of having a simple and easy-to-track account is far more valuable for short-term money. How many bank accounts do you have? Why?
TXorGA says
My husband and I currently live in two different cities. The past few years one or other has traveled extensively for work. So for us it made sense to have an account for the household bills that should not be used for any incidentals and a separate account for gas, groceries, coffee, eating out, oil changes, massages, haircuts. In short, all the annoying transactions under $100 go in that account. We fund the account monthly and spend only what’s in it. If I want a haircut, I look to see if there’s money in that account. Since we’re apart much of the time, this setup helps us with communication. There’s never a time when I use mortgage money to get my hair colored, which you can imagine would be a source of frustration!
Neal Frankle says
It sounds like you have it worked out really well. I am all for any solution that works. And your comment is more proof that when it comes to money, there is no “one size fits all” answer. I do have one question. Why not use a credit card – or even two different credit cards – rather than two bank accounts? Just curious. That would have been my first inclination. Thanks…I’m ready to learn more.