by Ashley
In accordance with one of my New Years Goals, I’ve been meeting with and interviewing financial advisors. And it’s made me stop and take stock of some of my money habits and think more broadly about our financial goals.
Since the early days of the blog, I’ve been a saver. And there are two types of savers:
- Those who put all funds in a single lump sum savings account.
- Those who have several savings accounts for several distinct purposes.
For years and years, I’ve fallen into Category 2, above. I have talked many times about my love of Capital One. I have a travel credit card through them (and love using the travel lounge for free as a perk!) In addition, I also have several savings accounts through Capital One 360. Each has a separate name, as an easy way to help me keep my money organized. For example, I have savings labeled: Home repairs, annual fees, travel, car repairs, and emergency fund. I’ve even opened two separate CDs: one for travel, and one for my EF. I have a smaller amount of money in the savings accounts, but more in the CDs for these two categories.
All of this may seem very complicated, but I had it very organized and I liked having these separate pots of money. Remember when I recently had to pay for some very costly car repairs? I really appreciated having a pot of money sitting there specifically earmarked for car repairs! It was so much LESS stressful than in years past where I had to take out a BrakeMax credit card to save some money since I couldn’t afford to pay for the full repair at once.
Recently, though, my perspective has been shifting. Now I’m leaning toward opening a single savings account and closing several of my Capital One accounts. Here me out…
Factors Influencing My Thought Process
- Interest Rates – When I first opened my Capital One 360 savings accounts, they were considered “high yield” accounts. My personal rate is 2.7%. The rate for my CDs is 4.5% and 5.0% respectively (I opened my CDs at different times, and the rates had changed from opening one to the second). This is no longer a very competitive rate. For instance, I found I can open up an e-trade savings account for 4% right now.
- Windfall – I mentioned a few months back about an inheritance we were set to receive. Since then, my father passed away, and another inheritance is coming. Given the influx in funds we are set to receive, it made me start to realize how unnecessarily complicated it is to have money stashed in so many different places. One place would be easier.
This then leads me to the question: What does “fully funded” look like?
I have all these savings accounts for all these purposes and it worked because I had a separate budget line in my category for each of these things. But what if each of these accounts was fully funded? What would that look like? What would I consider fully funded to be?
My Savings Accounts
- Semi-Annual Fees – Historically, I’ve had this be a $1,000 revolving account. I use it for my annual or biannual payments for things like car insurance, life insurance, HOA, car registration, and Costco membership. This has been working well for us and I plan to keep this as a CapitalOne 360 account.
- Car Repair/New Car Fund – In the past my car repair account was a $1,500 revolving account. But recently I started stocking money over and above that amount, thinking I’d like to save up to purchase a new-to-me car in a few years. My goal was to have about $16,000 saved up. I know that doesn’t go far these days, but it felt like a good amount to have as a down payment. Thoughts? I’m thinking I’ll keep a smaller Capital One 360 car repair fund of $1,500. But a new car fund would be better served sitting elsewhere. And “fully funded” at $16,000???
- Home Repairs – Historically, I’ve been depositing $150-$200/month to this account. We have used it for the odd repair that’s been needed, but mostly it’s purpose is to save up for larger home repairs like a new HVAC unit or roof. Given the high cost of those types of repairs, I’m thinking $20,000 would be a reasonable amount to consider “fully funded.”
- Emergency Fund – Historically I’ve had $5,000 in my dedicated Emergency Fund. I know Dave Ramsey says to have 3-6 months in an account and $5k certainly is not that. But if I also have a fully funded home repair fund and a car replacement fund….do I really need any extra over and above the $5,000 EF? Obviously if there was a huge emergency like a job loss or health issue, I could raid those other savings accounts if necessary.
Logistics
I’m thinking I’ll keep separate CapitalOne 360 savings accounts for my semi-annual fees and car repairs funds. But for the new car fund money, home repair money, and emergency fund….where should I keep that? One option is the e-trade account where it earns 4% interest. I know that’s certainly the safest bet (above investing in mutual funds, etc.). Is that what the BAD readers would suggest? It just pains me to think of that amount of money (combined approx $40k) sitting in a savings account when it could easily make double ROI if invested. I’d love opinions on this.
Regardless of where this larger pot of money ends up, it will now all be in a single pot (not separate accounts), and I plan to track it with a simple spreadsheet. I still just like the psychological piece of mind to know I have “X” amount for home repairs or “X” amount toward the purchase of a new car.
For those who are “lumpers” (putting all savings in a single account) – do you use a spreadsheet to track what the money is for? Or is it all just there in one pot and you use it as needed regardless of the expense? Just curious how others handle this type of budgeting.