Importance of Separating (Specializing) Accounts

Have you ever received a big sum of money into your checking account at one time? If you're anything like me, you see all of this money and all of a sudden, that 42" LCD TV looks to be a better deal than initially thought. After you go on your mini-shopping spree or purchase that item you had been eying for the last two weeks, you all of a sudden find yourself with more bills and less money to pay them. This is a problem that I used to run into before I started separating my accounts (financial goals). Now when I receive payment, I have a pre-scheduled deduction from my checking account to each of my specialized accounts.

Separate (Specialized) Accounts give you a Purpose

By creating a separate account for a specific financial goal, you can now have a reminder of the purpose of why you are contributing to that account. Typically, when you open an account with a online financial institute, they give you the ability to name each of your accounts so you are reminded exactly what you are contributing to. Some examples of specialized accounts are the following:

• Mutual Funds
• Stocks
• Car Savings
  
• Discretionary Spending Money
  
• Re-occurring Bills
• Emergency Fund
• 401(k)
• Buffer Savings Account
  

Separate (Specialized) Accounts allow you to Prioritize

By separating each of your accounts, you can now prioritize where your money goes. This allows you to easily adjust your allocation to each specific account in the case that an unexpected expense comes up or you are fortunate enough to get extra money. In addition to that, this helps combat the problem of overspending when there is a large amount of money in your checking account at any one time. By allocating your funds to each of your financial goals on the day that you get paid, you can be sure to have your financial goals taken care of and then decide how you want to use what is left over (without any guilt).

Separate (Specialized) Accounts allows you to see Progress

Separate accounts allow you to track your financial goals on a individual basis. Rather than having all of your money lumped into one account and have to manually calculate how much money you have for each goal, you can have them in individual accounts and watch the trend as your money grows over time. In addition to that, some specific accounts allow you to get more interest than others, so it may be more beneficial to have your money in an account that bears more interest.

Separate (Specialized) Accounts allow you to Prevent Unnecessary Withdrawals

Sometimes when money is easily accessible, it is easily spent. By separating accounts, one can put money in a less accessible account, such as an online high-interest savings account which typically gives you an option of whether or not you would like to receive a debit card. If you opted out of receiving the debit card, there is less temptation to withdraw that money prior to reaching your financial goal.

Although there are many benefits to specializing accounts, it does require a small amount of extra work. You must learn to keep up with the different accounts by keeping a list of each account and remembering the different passwords for each site. In addition to that, you must be sure to do proper planning to ensure that you have enough money to pay for your re-occurring bills prior to saving for other financial goals.

Once you have separated your accounts to isolate each financial goal, you will find it more rewarding to watch your money grow. Below are some financial institutes that I have used with separating my accounts.

HSBC Direct
Washington Mutual
ING Direct

As usual, if you have any questions or other recommendations, please leave a comment below or blast it out to the financial group list.

Stay Discplined!