I read this article from simple mom awhile ago about sinking funds and loved the idea. Basically you budget each month for something that will only happen once or twice a year. Like Christmas for example. We decided how much we want to spend on Christmas next year and split that total into 12 and that’s how much we need to set aside each month.
Saving for multiple things can get really complicated if you only have one savings account. Plus the temptation to spend your savings on something else is very strong. Been there, done that!
I liked the idea of opening different savings accounts for each item, but I didn’t want to get a new unfamiliar bank. After a little research we discovered that the bank we currently use for our checking account, Bank of American Fork, has a great new savings account called SaveSmartDirect.
This saving account is entirely done online. We sign up online, transfer funds online, everything. The interest rate goes up as the amount in the account goes up (our emergency fund gets almost 2.5 times the rate a standard savings account gets, yippee!), and we can open as many as we want. Plus we are still with a local bank that we know and trust.
Here’s a screenshot:
I love that we can rename the accounts so there is no question what that money is used for. And, all I have to do when we have an expense for that account is hop online, transfer what I need to my checking, and use cash from the ATM or my Debit Card. Transferring money from my checking to each account every month is just as easy and I can even set it up to happen automatically like a bill.
The money isn’t sitting in a huge “whatever” account so I’m much more likely to only spend it on what it is supposed to be used for. I also have peace of mind because I know that when the Jeep’s registration comes due next month I won’t have to worry where that money is coming from I just transfer what I need and pay the bill. No more going into credit card debt then figuring out how to pay for it later. I’m willing to bet that most banks have similar programs.