For some, the word “checking account” is representative of a large umbrella under which all their personal finances fall. From money for paying your bills, to money for family vacations, the checking account can house it all. But what if someone told you this may not be the smartest idea out there. Would you believe them? Say you consider yourself to be extremely responsible with your money, would there really be a need to have a separate account?
Yes, there would be, and here’s why.
Although one can put as much money as they would like into their checking account, the issue of merely having one account does not lie in not having enough money, but rather, limiting yourself from the ability to prioritize your money for the things that are most important.
We at Kennard Wealth Management have a saying: pay yourself first. When thinking about your finances, there are four simple steps you should start by following, and they all involve a personalized view of your finances:
- Pay into retirement
- Pay into investments
- Pay into your savings account
- Set up your savings systematically
By following each of these four steps, you are presenting yourself with the opportunity to think of yourself first, and therefore, pay yourself first. Many people refer to their checking account as their “job” or “work account”. Deposited into it is individual’s money that they receive from paychecks, and withdrawn from it is the money that is used to write checks or apply to business transactions. However, not everyone feels that this account should be limited, and believe it to have multipurpose use for all other finances. In doing so, their checking accounts are looked at and treated as one account where money is withdrawn for vacations, shopping sprees, and last-minute Amazon splurges, and that is a problem. When everything is combined into one account, the individual in charge of that account is less able to prioritize where that money goes and may not necessarily have as easy an understanding on where they are placing their importance as they would if they had separate accounts.
Think of it this way: if you were given $100 worth of “work” money, and $100 worth of “play” money each of which could be used for either category, would you combine the money? No, you wouldn’t. For one thing because you wouldn’t be able to be consistently maintain whether the “work” money or the “play” money was being distributed evenly, and for another, wouldn’t it make more sense to keep the accounts separate, contribute money into each, and then more diligently be able to manage the finances in each for the things that you prioritize? If your answer is “yes”, then you probably have or are considering opening more than just one account.
The biggest issue in having one account is the concept of prioritizing and how it’s impacted when you can’t clearly decipher where the importance is being placed. Initially, it may not seem like a problem, but where things get tricky is when you start to pull all your money together and forget to set a limit between how much you are willing and able to spend for things. Eventually, without a concrete dividing line, you will work yourself up into a frenzy trying to maintain this balancing act and most likely will slowly begin to teeter.
In the interest of your sanity, consider opening another account. It’s quick and easy to do, and most importantly it will allow for you to more effectively manage your money, and ensure that those things that are most important to you receive priority.