New year, new me? Right? For many people, getting their finances in order is at the top of their to do list. They’ve made a budget, they’ve started investing, they’ve begun paying their debt off. But bank accounts are seldom remembered when making a solid financial plan.
In fact, the number of bank accounts you have will often determine how financially successful you’ll be! With that knowledge, how many bank accounts should you have in 2020?
You may be tempted to close this article, open a new tab, and apply for as many bank accounts as you possibly can. This will, in fact, harm you financially, more than it will help you.
This is because it’s not the number, but rather the quality of the bank accounts that financially save you. Confused? Let me allow banking expert Michael Reyeves explain!
How many bank accounts should you have in 2020? (according to an expert)
(For reference, Michael Reyeves has been a bank CFO, analyst, investor and recently set up his own bank in Washington State).
I would say that you should have between 3 and 5 bank accounts. Each bank account will have different functions and purposes depending on what your financial goals are.
Bank account #1- income from your job
Chances are, you work a job or are self-employed and bring home a set (or varying) amount of money each month. This needs to go to your first bank account (or what Michael Reyeves would call bank account #1).
The whole purpose of this bank account is for holding your money, nothing more, nothing less. If you get a bank card (debit card) with this account, you never use it (or only in dire emergencies!)
This bank account is the most important as it will be the one that distributes your money at the beginning of each month.
Bank account #2- Bills and other expenses
So, somewhere in your budget you have probably mentioned paying your bills and other expenses. These will all be on your second bank account.
In your budget you have probably mentioned what all your monthly expenses are for things like your food and water each month.
Thanks to your hard work, you now know what you need to transfer X amount of money into bank account #2.
Let’s say for instance that your monthly expenses totaled to $100 (unlikely, I know), each month, whenever you get paid, you would transfer $100 from bank account #1 to bank account #2.
If you are doing your weekly food shop in a physical store and you were using your card, you would use the card from bank account #2 to pay for it.
Bank account #3- Debt
Debt is excluded from other general expenses for a reason- debt is keeping you poor, your weekly food shop likely isn’t (unless you are wasting most of your food, but that is unlikely).
At the moment, you are probably paying your mortgage and/or student debt from the same account as your investments account. This can be incredibly dangerous if you default on your debt (as it is easier for debt collection companies to garnish your investments account in order to pay off the debt).
In order to make it a little more difficult (and time-consuming), you should have a different bank account for your debt than everything else. Even if you are currently paying off debt from your main bank account, you can still change this!
You simply need to phone up the company (or bank) that owns your debt and tell them that you have got a new bank account and you’d prefer them to charge that account instead of your current account.
Again, you already know how much your debt(s) are costing you each month, so you will need to transfer that amount each month.
You will not need to use the physical card ever, as it would always be empty, or at the amount of your debt, in order to be paid to your debt company.
(It must be said that just because you have moved your debt to another account, this doesn’t mean that you can stop paying your debts. Trust me, those companies will do anything to get to your investments portfolio, even if it takes them a bit more time!)
Bank account #4- Saving/investment
The main reason you are probably trying to get your finances in order is in order to either save or invest. Either way, you need a bank account that is geared towards that.
If you are aiming to save, you need to search for a bank account that has the highest interest rates, in order to get the best return on investment. (You can find the best bank accounts for that by searching the phrase “Highest interest rate bank accounts/savings accounts” into Google).
If you are aiming to invest, you have two options: Bank investing or brokerage investing. If you are going down the route of investing through your bank, you will need to factor in things such as the commission per trade and the number of trades allowed per month (if applicable).
If you are going down the route of investing through a brokerage, you don’t really need to worry about anything to do with the bank account itself, merely how much you are allowed to transfer each month (again, if applicable).
Bank account #5- Everything else
This is your general spending card. This covers things such as eating out, going to the cinema, going abroad, days out etc.
In your budget, you probably set aside a certain amount of money for general spending. This is the fund where that money goes to. This is where all of the extra money stated in your budget, goes.
The best bank accounts for these are usually the ones with the highest cashback or reward schemes, that you can take advantage of.
Why do I really need 3-5 bank accounts though? Wouldn’t one work just as well?
Potentially. But chances are, that currently, all of your expenses seem to be coming out of the same account. This makes it quite difficult for you to see those extra expenses, those are the real expenses that are hurting you financially.
Yes, transferring four lots of money at the start or end of each month might be a little tedious, but trust me when I say that you will thank me in the long term!
If you choose 3-5 completely separate bank accounts, you could even download all of their apps on your phone in order to simplify the process even more!
At the end of the day, the 3-5 bank accounts are really there for the physical (and thus mental) separation. This prevents you from going over on the amount of money you are spending each month!
Thanks to Michael Reyeves for being kind enough to sit down with me for an interview (even if I was the one paying for it!)
