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.
I welcome folks’ opinions on 1) the logistics of where/how you save and whether you track the savings in a spreadsheet, and 2) what does fully funded look like to you? Weigh in on my thoughts, above. Is this pot of money too much/too little, etc? Any other factors that would influence your decision?
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Early 40s, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
I use a budgeting app (previously mint but now Monarch) to track my categories, including those that rollover month to month (like your separate savings accounts). I check once a month to ensure I have 1-2 months of spend in my checking account to prevent overdrafts. I keep any excess cash and emergency fund in a money market fund (~4.25% currently) attached to my brokerage account. And then transfer any larger amounts to checking as needed for large spend months or big expenditures like car repairs. once I have too much money in the money market funds I’ll buy some more vtsax.
What size is your EF in the money market fund? Is it a certain # of months worth of living expenses? I’m trying to decide if I’m keeping too much/too little/right amount.
Right now we have too much cash, because we’ve been waffling on buying a car and a house. Before that I aimed to keep 20-25k liquid, which is around 3 months of lumpy expenses, including our rollover budget categories (auto maintenance, annual bills, etc.). I’d honestly be comfortable with 2 months + budget categories. But that’s with the caveat that we are usually dual income, rent, and have no kids, a sizeable HSA, and have very good credit. I would say we are at low risk of needing significant cash on a short timeline.
We also have other places to pull from if absolutely needed and didn’t have it in cash. We could float expenses a month on a credit card, get an auto loan (our likely most potential “need”), cash out some of our previous HSA spend, or sell stocks from our brokerage account. I think that once you get to a certain point of multiple savings vehicles you can actually keep less in a dedicated cash-like emergency fund because you have several other options if there is a true emergency.
We keep our emergency fund (a year’s worth of expenses including mortgage payments) in a high-interest savings account and have a second, smaller account that has money we use for house or car repairs, expected and unexpected expenses that show up.
Last year we funded both accounts and almost immediately our car died, and we had to buy a new-to-us car. And then we had roof issues that have (hopefully) finally been fixed. I’m so glad we had saved more money than we initially planned – although these events were really upsetting, worrying about money wasn’t an issue.
I can see why people like specific accounts for each expense (house funds, car repairs, etc.) but I like our system. It works for us at this stage of our lives.
Oh gosh, when it rains it pours! I’m sure it’s nice to have the money sitting there ready to use!
A few options/thoughts-if you want to have less accounts to track, you can move bulk of money into one account and divvy it up on a google doc that shows what you are allocating to each item. So when you deposit $1000 you can add it in increments in your google doc as to what “pot” you are counting it towards. We do a “house” account. It covers mortgage, taxes, and household repair funds. We split the mortgage and tax into 26 equal amounts, then add about $1000 and then that amount automatically goes into its own fund. The mortgage is paid out of that fund, as are the taxes. Then the extras sit until we have a need.
I’m a big Google product fan (docs, spreadsheets, forms, drive, etc.), so the idea of a trackable Google doc really appeals to me.
We have our “liquid” money in one high yield savings account at the same financial company we use for our rollover IRAs, brokerage acounts etc. We try to keep it at 6 months worth of savings – so every now and then we might do money out. This is meant for emergencies plus as a buffer for something like job loss. Then when we can, we put money back in to keep it at 6 months of expenses. Multiple savings account would be too confusing for me, personally (everybody’s brain works differently!)
I like this idea! I think the multiple accounts worked really well when I had a line item for each in my monthly budget. But now that I’m talking about many of these accounts being “fully funded” (and no longer having an associated budget line item), I’m like…..why would I keep this money all separate? I don’t know why. Something about removing it from my monthly budget makes me want to keep the money all in a single account instead of separate accounts.
For us I’ve got just one savings account, but in my budget app (YNAB) I have different savings buckets to allow for a specific goal. So we have seperate car, home repairs, pet expenses, and emergency fund buckets, but they all sit in different buckets. Currently our home repair and pet funds are fully funded (10k and 2k), but we’re working on the car (trying to get 10k) and emergency funds (trying to make it to a year income eventually). But realistically if we need to take from one bucket to cover another, we’ll do that.
I will say my partner and I have higher savings goals to feel “fully funded” as we both have chronic illness and know that those will likely inhibit at least one of us from working
I’m sorry to hear about the chronic illnesses, but it sounds like you’ve taken a proactive approach to managing it (at least from the financial aspect of things) by bulking up your savings! It’s interesting that multiple commenters are talking about having a years’ worth of funds saved up. I think the readers are a financially conservative group (which appeals to my senses, too). 🙂
My husband and I are definitely more conservative and risk adverse with our money – which a lot of comes from unstable housing/food/etc in our childhoods and young adult lives. Now we are a lot more stable (both recently got higher paying jobs) and trying to figure out how to balance keeping that stability while also enjoying life (first vacation in a few years soon!). But we’re also doing things like putting 10% into retirement now (and I get a 10% employer match) while we beef up the savings this year, and then next year being more aggressive with increasing retirement contributions, as well as paying our house down quick
I keep all excess cash in a brokerage account at Fidelity. Between 50k to 100k is in a money market fund and the rest is invested in low fee index funds.
I use a spreadsheet to split the balance between routine things (property taxes), fun things (vacation spending), long term things (college savings) and inevitable things (new cars).
Sometimes I have fun with the account balance and think about what number I need to hit to retire early before I can access my retirement accounts. That’s always a motivation to increase the percentage of my monthly pay check autosaved into that account.
OMG YES about the early retirement! In our meetings with financial advisors we’ve told every advisor we’ve met that our primary financial goal is to RETIRE EARLY! Some have scoffed and pointed out that the highest earning decade is in the 50’s and shown us how the mathematical models change if we were to work longer. That’s an easy way to tell who is NOT the right fit for us! Financial freedom is my highest (money-related) aspiration!
We’re “lumpers” (lol at that name!). We keep $20,000 in the savings account at our bank (which has a horrible interest rate) and any additional funds get put in a Vanguard index fund. If we have large bills to pay, we pull from the savings account. After that, additional funds get put into savings until we’re back up to $20k. We can pull money out of Vanguard if needed, it’ll just take a few extra days, so it’s not like that money is locked away as it would be in a CD.
I like how streamlined this process is. Have there been times when you’ve needed funds in excess of $20k? I’m trying to wrap my mind around what that would look like…. new roof? vehicle?
We’ve only pulled money out of Vanguard twice, once for a down payment for a car, and once to pay for installation of solar panels. Every other time we’ve needed extra funds, we’ve just pulled from our savings account. $20k has been enough to cover everything else in the last 14 years.