We are fortunate to live in an area where free checking accounts abound. No fees, no penalties, no minimum balances. This has helped us tremendously in managing our money. My husband and I each have a checking and savings accounts, along with a joint savings account at Capital One 360 (formerly ING Direct). This gives us five ways to divide our money for spending, saving and debt payoff.
How We Arrange Our Accounts
Checking Account #1 is for bill paying only. It is also our primary account, so all income is deposited here and distributed to the other accounts (or withdrawn for cash envelopes). We have a monthly dollar amount that remains in this account to cover bills, and all the rest is assigned a “job” by being deposited into other accounts.
Checking Account #2 is for debt payoff only. We have a set dollar amount that is deposited into this account each week, but we have also decided that any extra or unexpected income will be allocated to this cause. Bonuses, tax refunds, etc. At the end of the month, we write one big check to chip away at our bills.
Savings Account #1 is for short term savings. If the kids want to go to summer camp or if we are planning a trip, the money comes from this account. We have a strict dollar amount that is assigned to this account and have decided not to add extra until our debt is 100% paid off.
We also have a cash envelope for short term savings. If we have a planned purchase to make, this envelope is funded from the savings account. Otherwise we keep a small amount in this envelope for unexpected things. Last month one of my children asked if they could take an art class that was not in our budget. We used the cash from our short term savings envelope to pay for it and decided our present savings goal could wait a little while longer. I’m not sure how Mr. Ramsey would feel about this, but we like to have a little wiggle room for the unexpected, so this works for us.
Savings Account #2 is for emergencies. This account is fully funded, but we still add a small dollar amount every month. According to Dave Ramsey, getting $1000 into an emergency fund is your first baby step toward financial freedom. Later on in the program, you add to it until you have 3-6 months expenses saved.
Capital One 360 is for long term savings. Presently we are saving for our Roadschooling Trip! We use this account because they provide free automatic deductions from our bank account so saving is easy. They do not charge any fees or require any minimums. We do not have a debit card associated with this account so in order to make a purchase we must request a transfer, which takes 3-5 business days. This means it’s a little more difficult to get to the money, which I like for long term savings purposes.
These five accounts make up our living funds. I also have a Paypal account/debit card that is used for online purchases and funded with money I earn online. Other accounts such as retirement, college funds and health savings are separate. I’m no financial expert so I’ll leave that up to you. We chose our funds with the help of a Dave Ramsey approved financial advisor.
What About Giving?
Since I’m the type of person who does not like unexpected financial hiccups, we have our giving automatically deducted from Checking Account #1. Many churches and non-profit organizations can set up monthly deductions for you. This may not be the right thing for everyone, but it works for us. If we decide to give beyond our automated deductions, we use our short-term savings.
I am not a financial expert. Just a mom. This setup may not work for everyone. The reason we decided on this system is because I found we were overspending when we had a little extra money jingling around in our checking account. Assigning a purpose for every dollar has challenged me to stay on budget and avoid impulse purchases.
If you have some ideas or advice for staying on budget, please share in the comments!