A smart way to save for larger purchases

An Advantage to Having Both a Checking and Savings Account

by Gary Foreman


Related Articles

Use a Luxury Tax to Trick Yourself Into Saving

Ways to Build an Emergency Fund

Video: Where Should I Put My Savings to Get the Best Return?

Dear Dollar Stretcher,
My wife and I will be needing a car soon. I want to know how I can go about saving for it. Also, for buying special items for the house, should I use my savings account at my bank? Is it wise to use my checking account for monthly expenses only?
Thank you.
AC

AC packs a lot into one paragraph. And, he's right in assuming that how you handle your money will make a difference in how much money you have.

Many families invite money troubles by keeping all their available funds in a checking account. Money flows in and out without much thought. It's certainly a convenient way to handle your money. But, not the best way to manage it.

Aren't we making a big deal over nothing? No. A good system for controlling your money can save you time and make you money. It can provide helpful information at a glance and keep your money from disappearing. It's the first basic step to controlling your finances.

Think about how your life works. Your expenses could be divided into four categories. Monthly routine bills, larger expected bills (like vacations), larger unexpected bills (like auto repairs) and very large expenses (like a house or car).

Just as there are different kinds of expenses, the money that's used to pay for them should be handled differently. And AC has a pretty good system started.

Are you heading for debt trouble? This simple checklist can help you.

Let's flip his questions around and look at the last one first. Yes, it is best to limit your checking account to paying regular monthly expenses. There are a couple of reasons why that's true.

It's easy to write a check to pay a bill. That's good. But that easy spending can be bad. If you're saving money for a new stove you don't want the money too accessible. Temptation could make it easy to buy a fishing rod or theatre tickets.

When money is real tight it might be necessary to keep everything in a checking account. Naturally, the risk is that the money tends to disappear making it harder to save.

AC is doing the right thing by putting some money into a savings account. Taking it out of the checking account protects it. If AC wants to dip into savings for a special purchase he'll need to consciously make a decision to take the money from the savings account. The money won't disappear a little at a time.

The 'big expense' money needs to be safe and reasonably available. It's helpful to be able to know how much money you have available for the unexpected. Most people use a savings account or money market fund.

And since you don't routinely dip into savings, a look at your account balance will quickly tell you how much you have for the home insurance or auto repair bill.

Get the interest your deserve!
Compare savings account rates with our best rate finder.

If AC is saving for a new car he might even want to set up a separate savings account just for that purpose. In fact, watching the balance grow could be a way to encourage him to save even more.

Making use of a savings account or two along with his checking account could definitely help AC keep track of his money. It could also help him to accumulate it faster.


Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.

Take the Next Step:

  • Start a high yield savings account with Discover Bank.
  • Are you getting the best CD rate? Use our simple CD tool to find out. It's completely private, easy to use and you'll know what rate is available to you in seconds!
  • Do you struggle to get ahead financially? Then you'll want to subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
Get Out of Debt
Stay Connected with TDS










Do you struggle to get ahead financially?

Surviving Tough Times is a weekly newsletter aimed at helping you stretch your dollars and make the most of your resources.


Debt Checklist
Subscribe

And get a copy of Are You Heading for Debt Trouble?
A Simple Checklist and What You Can Do About It
for FREE!



Your Email:



View the TDS Privacy Policy.

Get Out of Debt