Savings buckets: divide and conquer

Something I’ve wondered about for a long time is whether it’s better to keep savings in one bank account or to separate into several ‘buckets’ for things like emergencies, holidays and investments.

How to divide and conquer your savings

If you’ve read my post about The Barefoot Investor, you’ll know that I’m a major fan of Scott Pape’s systems. He recommends you set up a few accounts separate from your everyday expenses including:

  1. Splurge – 10 per cent of your take-home pay to blow on whatever makes you feel good (coffees, date night, a massage)
  2. Smile – 10 per cent of your take-home pay to save for bigger fun goals that will cost more than a few weeks wages (holidays, weddings, special gifts)
  3. Fire Extinguisher – 20 per cent of your take-home pay to put out any ‘financial fires’ like credit card debt or getting a home deposit together
  4. Mojo – start with $2,000 and only use in absolute emergencies. The aim of this account is to grow your wealth and means no more money stress.

I set up these accounts recently and although I’m yet to save much in any of them (whoops), having them there is helping to change my money mindset.

The splurge account, in particular, feels like a big win. Because the money is already allocated for spending (and it’s only a small amount), I don’t feel guilty about using it for stuff that makes me feel good, like meeting a friend for coffee or going to yoga. It’s there to be spent. And that means I don’t spend money that’s not there to be spent (like using a credit card).

Having targeted savings accounts can also be a great motivator. Just giving your fund a name means you’ll be more attached to a positive outcome. It helps you to visualise success. Now, this may mean getting even more specific about the names of your savings accounts, for instance naming your Smile fund “My Dream Wedding” or “Getting to Santorini in 2018”. Whatever works.

In addition to these Barefoot Investor recommended accounts, I have also set up an account dedicated to money I make from selling things on Gumtree. This has a great feel-good factor and encourages me to keep decluttering and moving things on to new owners. If you want tips for how to get started selling on Gumtree, check out my free guide.

Selling clutter for cash on Gumtree - a five-step guide to success

For some people, it won’t make complete sense to split up savings because separating cash may limit the interest you can earn. But when you need some motivation to save and want to encourage a feeling of financial flow in your life, it’s a good trick.

Just make sure you are using fee-free online accounts!

Do you split up your savings? Does it work for you?