SHEWOLFEOFWALLSTREET

View Original

How to Organize Your Bank Accounts

I remember when I first started my money journey, I always found myself asking very basic questions like:

“How many bank accounts should I have?”

“What types of bank accounts should I have?”

“Should I have multiple accounts?”

“How do I organize my money?!”

However, I always struggled to find a straightforward answer that put everything I wanted to know in one place. I’ve done all the research and have put every method into practice, so you don’t have to. Here is your complete guide on how to organize your money and all of your checking accounts, savings accounts, and investment accounts.

See this content in the original post

List of Bank Account Types

I want to make this guide as accessible as possible for you so let’s first list out every type of account you should have. You can click on either account to jump straight to the section that talks about how to organize them.

Everyday Accounts

We use these to organize our money for everyday expenses, monthly bills, emergency funds, and sinking funds.

Checking Account

Savings Account

High Yield Savings Account

Investment Accounts

We use these to build wealth so we can reach our long-term goals faster and set ourselves up for retirement!

Individual Retirement Account (IRA)

Employer-Sponsored Retirement Accounts (401k, 403b, 457)

Brokerage Account (standard taxable investment account)

Investing for Kids

529s

UGMA/UTMA

Brokerage Account for Kids

See this content in the original post

How to Organize Spending and Bill Money

The checking account is where all your spending and bill money goes, but we’re taking it one step further when organizing our money.

Instead of having just one checking account for all your spending and bill money, try having TWO checking accounts! I think having two checking accounts is incredibly helpful when managing your cash.

Checking Account Set Up

Your paycheck will automatically flow into Checking Account 1, as it probably already does. Checking Account 1 will be used for bills (rent, cell phone, minimum debt payments, etc.) and your auto transfers to your savings and investment accounts.

Checking Account 2 will be used for spending money. This is anything you’re swiping for throughout the month (gas, groceries, shopping, etc.). You decide how much you want to spend on those things, and you’ll set up your cash to automatically move from Checking Account 1 to Checking Account 2 every payday.

Using this method, you know just how much you have to spend, so you don’t go over your budget and risk not being able to pay your bills. As always, do what works for you.

Ensure you aren’t accruing any fee with your current checking account (e.g., your direct deposit is too low, so you’re charged a $6 fee every month, or you keep dipping below a minimum balance and are charged a monthly overdraft or maintenance fee). 

If you are, break up with your bank and find one that doesn’t charge fees. Most checking accounts can easily be opened online for free. There may be perks for opening new checking accounts, so shop around when opening yours. Remember, you’re doing them a favor by keeping your money there, so make them work for your business! 

See this content in the original post

How to Organize Savings Accounts

Most people have their savings sitting in a traditional savings account at a big bank.

This is just like a regular savings account BUT ON STEROIDS. Regular savings accounts at big banks typically offer 0.01% interest, maybe 0.02% if they're generous. But a high-yield savings account offers up 2 - 3% interest! That means more money in your pocket! High-yield savings accounts are held at online banks, like Ally, Marcus by Goldman Sachs, etc. As of 2024, many of these online banks have increased the interest rates closer to 4% or 5% to help offset the effects of inflation (it’s been a wee bit higher than normal the past few years, womp, womp).

What’s the catch?! Nothing! For real, there is no catch. Online banks typically have less overhead than big banks with branches all over the country. Because of that, they trickle down those savings to YOU and offer you high interest rates on your savings.

You’ll want to be strategic and have at least two high-yield savings accounts: one account for your emergency fund and one account for your sinking funds (or short-term goals). This way, you won’t accidentally spend the money you’ve saved for a rainy day at Sephora, Lululemon, or whatever your kryptonite may be.

How Much Money Should You Keep in a High-Yield Savings Account?

How much should you stash in your HYSA? The number is going to be different for everyone! One of our high-yield savings accounts will be dedicated to our Emergency Fund. As the name implies, this is for emergencies only. Think of unexpected events and expenses like a trip to the ER, a car accident, or job loss. If you need help calculating your emergency fund, you can check out my blog, Why Creating an Emergency Fund Should Be a Top Priority. It answers just about every question you have about emergency funds (what they are, why you need one, what it’s for, and how much you need).

Our other HYSA will be dedicated to our sinking funds, or what I like to call “fun money!” Sinking funds are used to save for future known expenses. Think fun things like a shopping spree, massages, and that bachelorette party to Tulum! 🌴

Our sinking fund also helps cushion our monthly budget by preparing for less fun things like pet expenses, car maintenance, etc. And while saving money for the chimney sweep to come every spring isn’t nearly as fun as saving to sit poolside in the sunshine with your bestie, what is fun about it is being prepared to spend that money when the time comes and not having your whole bank account decimated by the charge. 

Ideally, you want to have multiple sinking fund buckets to keep your goals organized. My favorite HYSA is Ally due to its buckets feature (seen below). But Marcus by Goldman Sachs is another great option. You can just create multiple accounts and name them after your goals!

With Ally, you can set up buckets for different categories to organize your money within your HYSA.

Which one do I use? I actually have three HYSAs at three different banks. All my sinking funds are at Ally (because I can organize them into buckets), my emergency fund is at Marcus by Goldman Sachs (out of sight, out of mind), and I have a third account dedicated to quarterly tax payments at Live Oak.

See this content in the original post

3) Retirement Accounts

Retirement accounts are where we keep money to invest, so we have money for retirement! Retirement accounts are the bee’s knees because there are a bunch of tax advantages that come along with the accounts.

See this content in the original post

Individual Retirement Account (IRA)

An IRA is an Individual Retirement Account. You can have a Roth IRA and/or a Traditional IRA. The Roth IRA is my personal favorite, though, because of the tax-free growth! You can read all about why the Roth IRA is my favorite account here.

But back to the IRA in general! IRAs are personal retirement accounts that you open on your own. Anyone can open an account; you just have to have earned income to contribute to it and you can only contribute up to $7,000 (for the year 2024). It takes less than 10 minutes to open an account and start investing, and you open them at places like Fidelity, Charles Schwab, and Vanguard, amongst others.

See this content in the original post

401k/457/403b

If you have an employer-sponsored retirement account like a 401k, 403b, or 457, this is another account you will want to have in order to maximize those tax savings! If your employer offers a match, make sure you are getting it! Not sure if you are? Literally, just email your HR department and ask. Remember that money is part of your total compensation package, and you have worked hard for it! 

See this content in the original post

Health Savings Account (HSA) 

If you have extra money, you’ll want to look into other accounts available to you, including a Health Savings Account (HSA). For some people, you may even want to open an HSA before you open a Roth account if you’re eligible for it (not everyone is).

See this content in the original post

4) Taxable Brokerage Account

A brokerage account is just a fancy way to say: a standard, taxable investment account that anyone can open. 

Unlike other investment accounts like the 401k and the Roth IRA, a brokerage account allows you to buy, sell, hold, and withdraw as often as you want. You won’t be hit with a big penalty (woo hoo!), but beware of capital gains taxes, especially short-term capital gains taxes. If you are a long-term investor (because money works best when we give it time to do its thing—s/o compound interest), you won’t have to worry about that.

Because accounts like the 401k and Roth IRA have limits on them, the brokerage account is meant to supplement the #gainz you’re getting from other retirement investment accounts. This helps ensure that your days of eating Ramen are left in the glory days of college and not for the golden years of retirement. 

However, brokerage accounts aren’t just for retirement. Picture those goals you have for 10+ years from now. Maybe that’s upgrading your home, adding a pool, your wedding, or something random (did you know what you wanted to spend your money on ten years ago today? Probably not, and the same thing will happen ten years from now). Still, whatever it is, a brokerage account allows you to put aside a little money at a time and have it accrue interest that’ll help you be able to pay for whatever it is that comes your way. 

See this content in the original post

5) Investment Accounts for Your Kids

Now that you’ve put your own oxygen mask on first, you can start thinking about the kiddos. There are three types of accounts you can open for your kids: 529, UGMA/UTMA, and a brokerage account.

See this content in the original post

529

If you are considering saving for future education expenses, you may want to invest in a 529 account. These accounts are popular ways to make saving for your children’s college education easier because they offer a few tax benefits (hooray, free money 🎉)!

Many people don’t realize you can transfer your money to another person! So, let’s say you intend on saving for your firstborn to head off to Harvard, but they want to take another path. You can use that money on another child or even transfer it to a niece or nephew. 

529 accounts don’t just have to be for universities, either. This type of account can also cover community colleges, trade schools, and many certification programs! 

And heck, you don’t even have to use it for a kid. You can use it for yourself! 

See this content in the original post

UGMA/UTMA

An UGMA/UTMA (Uniform Gifts to Minors Act or Uniform Transfers To Minors Act) is a custodial investment account for your kid that you manage until they turn 18 or 21, depending on the state that you live in. It’s important to note that these accounts can’t be transferred to another person - they have to be transferred to your child when they turn 18 or 21. But they are more flexible than a 529 in the sense that they can be used for literally anything!

The key here is to educate your child on all the money stuff so they don’t blow this money when it transfers to their name. 

You can open these accounts wherever you have your own brokerage or retirement accounts like Fidelity, Vanguard, Charles Schwab. etc.

For the UGMA / UTMA, I personally love the app Earlybird. They make gifting to your child’s account super easy. So think about all their birthdays, Christmas, and other holidays - family members and friends can automatically send money to their investment account with a little note for them vs. needing a bunch of personal information. You could have this as well as one at whatever other firm you use. If you want a free $15 to start, check out Earlybird.

Note that both types of accounts have student loan implications, so do your own research, as always. However, I think the goal would be not to have student loans at all and to get that money snowballing earlier rather than later!

See this content in the original post

Brokerage Account for Kids

Now, if all these types of accounts are making you a little nervous because you don't like the idea of the account becoming theirs when they reach a certain age or you're unsure if they're going to continue with higher education after high school, you can always just open a second brokerage account under your own name and gift it to them later in life. This can be nice because you can wait until you feel like they are ready to take over the account, whether that's 18 or 28, or you can decide to not give it to them. It's your choice ultimately.

When you do decide to actually gift the account to them, they will not pay taxes on that money until they actually go to withdraw it. So if you give them an account that has $50,000 and it's not like they have to pay taxes on that $50,000 as you gift it to them, they'll pay taxes when they go to actually withdraw the funds just like you would. But the cons are going to be that they don't have as good of tax advantages as some of these other accounts. You'll have the long term capital gains tax, which is, of course, better than just paying income tax, but you're not going to get to take advantage of the other types of plans, the kiddie tax, things like that.

And just remember that investing for your kids or your friend's kids or your niece or whatever in any type of way is better than not investing at all. So if the other ones make you a little bit nervous, then you could always go this route as well.

Wrapping Up

Rome wasn’t built in a day, and unfortunately, neither was wealth (although I wish it were because, believe me, if there were a way, ya girl wouldn’t gate-keep). 

No matter how many of these accounts you were able to check off today, you now have a road map for what you need to do. 

Have a checking account that isn’t nickel and diming you with fees, but missing separate savings accounts for emergency and sinking funds? 

No sweat! 

Have a 401k? But not sure if you’re getting your entire match?

A-ok! 

Make a list of what accounts you need to open and which accounts you know you have but need to check in on to make sure you’re using them to your full advantage and do a little financial account health checkup. 

Want to learn more? Sign up for my weekly newsletter, where I deliver tips and tricks you need to improve your personal finances right to your inbox!