Uber popular financial guru Dave Ramsey is a huge fan of the envelope system where you put your budget for certain areas into separate envelopes and just pull from that envelope when you need to spend money. I am a big fan of separating different monies for different things, but what about saving? Using an envelope to save tons of money is not entirely practical. What if you had a separate savings account just for extra saving?! I've been doing this for a while now. We have a separate bank account for fun money. We typically use it for vacations, but have also used the money in that account to buy fun toys like tablets or video games as well. This account is in addition to our regular checking and savings accounts that we have.
The reason I like having a separate account so much is that it makes it a little harder to spend the money that you are trying to save. If all of your money is in one account, it's too easy to get the money mixed up, or to pull from your savings if you "need" it. If you maintain a separate account for fun money (or whatever you would want one for), you are more likely to stay committed to the goal of that account. The extra account that we have is from Capital One 360. It's 100% free and earns us 0.75% interest, which in today's world, is pretty good for a regular ole' savings account. The best part, by far however, is that there are no minimum deposits and no hidden fees or service charges. That is very important because this is an extra account that will probably be slow progressing with low deposits at times and it's nice that you don't have to worry about fees.
Keeping the account separate from your spending accounts will help you save. It's way too easy to use a debit card if you have it, or withdraw from an ATM knowing that you've "got the money" in that account. Making the account basically a deposit only account will help you rack up the savings! So set a goal for saving and stick to it! Maybe only put your bonus from work in there, or money that is gifted to you, or take $5 per week no matter what and put it in there.
Us? We use our separate account for vacations.Speaking of which, this time next week we will be relaxing on the sunny shore of California. Happily using the money from our "vacation fund" account. It'll be nice knowing that we can go to dinner or order room service and not think about the money.
So what do you think of this idea? Do you do this already? What would you use your extra account for?