One checking account for mortgage, bills, groceries, gas. Anything I consider “essential.” My paycheck is deposited here. I’ve figured out my average monthly spending and also allow for once-in-awhile items like car repair. Once my auto-transfers are taken out (see below), the amount left over corresponds to my monthly essentials budget.

Second checking account (linked to the first) for non-essential spending only. Restaurants, lattes, clothing, travel. I auto-transfer a set amount per month and must live within that. This works great (so far); since all non-essentials come out of the same account, it puts a brake on spending. I want to go to Paris next year, so I don’t buy that morning latte, expensive shoes, etc. I am motivated to see this account grow. It also allows me (almost) guilt-free spending; since I’ve made the choice to allocate the money for non-essentials, I can spend it however I like.

Free savings account linked to the two checking accounts. I only stash a few hundred dollars here, it’s sort of a mini-emergency fund. I know it doesn’t make sense but for some reason I have not been able to shut this account down. I just like having that little buffer there.

ING account for my true emergency fund. I have an auto-transfer into this account each month, which will stop once I hit $10K. Then that extra money will probably go pay off my car.

Vanguard Money Market fund. This is a carryover from a few years back and I have just over the minimum (for no fees) in this account. I’m not currently contributing anything and I’m trying to decide whether to move the money to my ING account, or keep it open.

The only problem that I have with maintaining separate accounts is with Emigrant, since it’s a pain to link a second Emigrant savings account to more than one external account. Linking the first savings account to two externals requires sending in the voided check, but I think you have to do that procedure again with the second account (your “primary” external account is already added as a funding source to the second savings account). Am I missing something?

My two cents…

But if one account works for you, more power to ya.

I have a Do not Touch (DNT) account at ING for savings which I roll into CD’s once it goes above a certain threshold to get a higher rate. The rest is left as an emergency fund.

In addition, I keep a Periodic Expenses (PE) account at ING that I use for scheduled periodic expenses like insurance, class tuition, and other scheduled fun activities like going to a concert or ballet. I work out my known expenses for classes, insurance, etc then split that amount into automatic bi-monthly payments to this account. (Sounds complicated when written like this, but it really isn’t - if you know you’re going to take $1000 of classes and pay $1500 in insurance then divide 2500/24 and you’re good to go! :))

For monthly bills, I put as many as possible on my credit card and pay via a separate checking account. That account has my paycheck direct deposited and I have a running tally of exactly how much I’m allowed to spend on “frivolous” items like clothes and eating out. I am blessed with a good head for numbers so I know approximately how much I’ve spent on those items without having to keep detailed track. If I slip up, my credit card is automatically set to send me notifications of a high spending threshold for the overall bill as well as individual purchases. I will then rein myself in for the rest of the month.

I have considered signing up for smartypig.com but want to hear more reviews from people I trust before doing so.

I think it’s one of the easiest ways of doing things. Some things you can’t put on a credit card, but most things you can. Depending on your location you may be able to put all things, or very little at all. I usually just put groceries, general merchandise, and gas on the same card. It keeps things simplified for me.

The compound interest argument by Financial Finesser is flawed. All the accounts are making the same amount of interest. If you add up all the balances and do the same amount of interest over a time period, or separate them into separate accounts it comes out the same.

Take this example:We’ll have two accounts with the same principle, annual addition, years to grow and interest rate. We’ll add those accounts together and pretend like they were one large account and see what one is larger.

Principle: 250
Annual Addition: 250
Years to Grow: 5
Interest Rate: 3%
Ending Balance:1656.92

Principle: 250
Annual Addition: 250
Years to Grow: 5
Interest Rate: 3%
Ending Balance: 1656. 92

Principle: 500
Annual Addition: 500
Years to Grow: 5
Interest Rate: 3%
Ending Balance: 3,313.84

If you look, it comes out exactly the same. This is with the interest compounded one time annually. You have to remember that the same amount of money is being added, and applied interest to throughout the year. It will come out the same.

However, on a monthly basis, I take out my “savings goals” spreadsheet. I add up my total amount of savings, and then assign amounts to each of my savings goals, until it adds up to my total amount of savings. So for instance, my non-emergency savings is about $2200. So I have $200 allocated towards a vacation fund, $1000 allocated towards my long-term savings goal, $100 allocated towards a new couch, so on and so forth.

I am thinking about switching to a similar system where I pay everything with credit card for the rewards and then make a single payment.

Does that work pretty well for you? Any issues with not being able to pay certain bills with a credit card?

It sounds like a lot of work to manage the accounts, but since all payments are done by auto-pay it doesn’t take any effort on my part.

I work for myself so I need to pay my own tax at the end of the year. I have a separate account for this - an online savings account that is linked to my main account, rather than a separate checking account.