Do You Have These 3A's?

When I started working, I assumed that I should have one bank account and that all my activity should be managed from there. It's easy to keep track of, easy to manage.

I could not have been more wrong.

Having all the money in one account, gave me this false sense of being rich –although I was definitely not– which in turn gave me "the license to spend". Five years later, with very little put aside and nothing in the way of investments, I had a lot of assets, but nearly all were of the depreciating kind. What really helped me get on track when it comes to money was setting up different accounts for specific purposes. By allocating my paycheck as soon as I received it, I had a more realistic –sometimes slightly depressing– picture of my finances.

Here's how I organized three bank accounts:

1. Expense account

This is where your salary –or any source of funds– gets deposited into. It is typically a savings account with a wide ATM network for accessibility. Having an m-banking or internet banking facility will also help for paying your regular expenses; credit card bills, utilities and other payments. Only leave one or two months of expenses in this account.

2. Emergency fund account

An emergency fund is an amount equivalent to 6 months of your expenses for any crisis–job loss, illness. This should also be in a savings account so in case you need the funds urgently, you can withdraw from it without any penalties –as opposed to a time deposit which will charge you for taking out the funds before the maturity date.

The difference of this savings account vs. your expense account is that it should not have ATM facilities –or you should leave the ATM card at home– so you are not tempted to dip into it every time you pass by your favorite store.

3. Goal account

This is money you set aside for your goals, e.g.  retirement, travel, saving for that house down payment, saving for your child's education. Anything that is not in your expense and emergency account should go into this pot. The most important thing is to keep this in a time deposit or an investment account that gives you higher interest rate than a savings account. 

Who needs the three C's (car, credit card, carats), when you have these three A's to help build your finances and reach goals?

Account name Account type It should have... Amount
Expense Savings ATM, m-banking, internet banking About 2 months of expenses
Emergency fund Savings No ATM Six months of expenses
Goal fund Time deposit or investment Higher interest rate (vs. savings account) Everything else


Read also: 4 Effective Tips to Secure Your Emergency Fund

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