Many people channel all their savings into one cumulative account. However, it can be very useful to break up your savings into different accounts for different purposes.
Ideas for Splitting your Accounts
How many savings accounts you need is specific to you, as it depends on how many financial goals you currently have. Here are some examples of financial goals you might be saving for:
- Buying a car
- Going on holiday
- Having an adequate emergency fund
- Buying a house
- Christmas presents
- Your wedding day
Reaching your Financial Goals
Splitting your savings into different accounts may help your reach your different financial goals. This is because it enables you to clearly track your savings progress for each goal, allowing you to differentiate between them.
It can help you prioritise each goal accordingly. For example, you may choose to save £100 a month for a new car and only £30 a month for a holiday, because the new car is what is more important to you.
Making your Savings Clearer
If you have your emergency fund sitting in your account with your other savings, it’s easy to think you have more money saved towards your goals than you actually do. This can make it tempting to overspend, as you may end up using some of your emergency fund money to go on holiday!
Splitting your savings into separate accounts helps you to associate the money in each account with that specific financial goal. Therefore, it makes you think twice about withdrawing money from your savings, as you’re actually considering what you’re giving up by doing so.
By splitting your savings, allocating a specific time frame to each financial goal and working out how much you need to save for each goal, your savings will be far easier to keep track of. It can be difficult to keep track of your savings when they lie in a lump sum in a singular account, as you end up focussing on the total balance, rather than the amount saved for each individual goal.