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Simplify Your Finances: Organize Your Accounts

By Erik Folgate

http://images.inmagine.com/img/corbis/crb307/crb307009.jpgI’m going to run a short mini-series on simplifying your finances. I think that much of the problem sometimes with managing our money is that we tend to complicate the situation more than it needs to be. There is no reason that you should feel intimidated or overwhelmed with managing money. Money is not complicated. We are the ones tha make it complicated. So, the fist thing to do get your bank accounts organized. I am going to show you a method that works for me. Basically, I have three separate accounts for three different purposes. They are as follows:

Checking Account: This is a joint checking account. All of our income flows into this account. We pay all of our bills out of this account. We also extract all of our discretionary money out of this account including cash for entertainment, clothing, and “mad” money. This is our primary account and it has the most activity. We have our debit cards attached to this account, and we ONLY try to use the debit cards for groceries, gas, and some items that need to be bought online like flea medication for our dog. This money is already pre-budgeted out, but we just keep it in the account and use the debit card for it. We found that taking out the money for this kind of stuff was too dangerous to be carrying around.

Short-Term Savings Account: We use ING Direct’s online savings account. The interest rate isn’t very good right now. I think it’s about 2.5%, but we don’t have it for the interest rate. We have it to set aside money for our emergency fund and anything else that we are saving up for within the next 1 to 3 years. This can be anything such as a vacation, car, or other expense that are anticipating before it happens.

Long-Term Savings Account: We actually don’t have one of these yet, but I’ll be setting it up as soon as my wife starts working. I contribute to a 401(k) at my day job right now, but we have waited to open up Roth IRA’s until my wife starts working as a physician assistant. Any of the online brokerage accounts such as Etrade, Scottrade, or Sharebuilder are good brokerage accounts to open up to send money to for long-term investing goals.

These are the only three accounts that you need. If you don’t like to carry around much cash, then you could consider opening a second checking account to keep discretionary purchase money in a separate checking account with a separate debit card. But, that would be the most that you’ll ever need. If you have multiple brokerage accounts or multiple savings accounts, you’re just creating a hassle for yourself. Simplifying your finances is the name of the game. Once you’ve done that, you’re well on your way to achieving your financial goals and financial freedom.

Next topic: Simplify your investment strategy

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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