Saving with a purpose: separate accounts really can help

I love to see the numbers in my savings account increase. I do not notice the small dings in my savings account, but the big ones I do. For example, I will be replacing two of my single-pane windows in 2008 at a cost of ~$1,800.

Initially, I had two accounts at my credit union: a savings account and a checking account. When my savings account got to a certain level, I opened a CD. After taking a budgeting seminar and realizing how to better allocate my money, I started to set up separate savings accounts. My credit union makes it easy to set up separate savings accounts even without going into a brick and mortar branch. It takes a week and involves USPS, but then I have a shiny new account with whatever amount of money I have transferred.

Once I moved into my house, I set up an account for housing expenses. I call it a "house savings account" but it is one of the most liquid savings accounts I have. Like my standard savings account, a certain amount is automatically transferred from my checking account each pay period. This gave me money earmarked for specific category purchases and could help me save for a larger purchase like a lawnmower. One of my friends likes to keep track of his money in a spreadsheet including amounts set aside for a particular item. I do not find spreadsheets quite as satisfying. I like to have specific accounts for a specific purpose and watch the money grow.

When I was saving for a trip to Germany, also in a separate savings account, I discovered the world of high-yield savings accounts. The credit union is great financial institution, but it is difficult to beat the then rate of 4.5% APY from ING Direct. I set up a new account and transferred all the money in my Germany account to this new interest-bearing account. It was nice to have a few extra dollars by the time I left on my trip. I saved so well, I paid for my entire trip AND boarding my cats with a bit left over. At that time, the US dollar was about 1.38 Euro so I lost some buying power going overseas.

With the German trip accomplished, I decided to redirect the money into padding a few of my spending categories and start saving for a car. My ten-year old vehicle is serving me quite well. I take it in twice a year to be looked over and change the oil every three months. With two minor exceptions, my car has performed flawlessly in the five years I have owned it. I am hoping to reach at least the average lifetime on a car (150,000 miles) and even a bit more to maximize my savings. I have not paid cash for a car yet but I am striving to do so.

Then I realized opening subaccounts on ING Direct is even easier than new accounts with my credit union. I just decide I want a subaccount, determine how much to open it with and within a few days, I have new subaccount! Even though I am frugal, my spending plan usually incorporates these choices and I do not realize the savings in extra money. However, I decided I would open an ING subaccount for "found money". This would include portions of the unexpected bonuses from work (not large amounts of money but I did not want to just spend them), rebates and gains from selling items. Since none of these are regular income, I decided to see how much I can save from just these occasional sources. I was able to save $75 in one month in this account. My goal is to keep adding to it and open a Vanguard account with the money. Since the minimum for investment is $3,000, it will take years, but I have a goal and a place to watch my "found money" increase with compounding.

I have found my separate and subaccounts satisfying in my quest for increasing my savings. It prevents all my saved money from being mixed up in one pool, which I do not like, and I can see how regular deposits can increase the amount in each account. Since my spending plan is much like an envelope system for budgeting, I have appled the same principle for my savings accounts. Keeping track of all these accounts may not be helpful for everyone, but consider if this may be a technique you could use for your financial endeavor.