Friday, February 20, 2009

Creating Savings Sub-Accounts

I’ve had an ING savings account for awhile now, but have never set up any sub-accounts. I just didn’t see the point. But after reading JD’s post about prioritizing savings goals at Get Rich Slowly, I’m coming around to the idea. It would be great for things like saving up to buy clothes and shoes. It’s always hard to go make any sort of major wardrobe upgrade without decimating the spending money set aside for that particular pay period. Saving up a bit out of each check to then go and spend all at once would be MUCH more fun. The same would be true for vacations, presents, and pampering (things like massages). If I created accounts for those things, the money would just build over time, so I’d have decent chunks of money available when the various needs arise.

I also like JD’s idea of “snowflaking” when it comes to savings. It’s similar to the debt snowball but uses the concept to augment savings goals in a way that prioritizes them. Any extra money not spent at the end of a pay period would go into the sub-account currently with the highest priority, while all the others would just get the minimum amount set as an automatic transfer. When the first priority goal is met, the extra funds would be rolled over to the next highest.

Right now, I put $200 into my one ING “emergency” fund with each bi-weekly check. Many small things have come up lately and that fund hasn’t grown much beyond my initial goal of $1000. That amount seems sufficient for most unexpected things (knock wood!) but I’d like it to grow to about $2500. To reach that level by this time next year, I will put $60/check. I also realize that I’ll inevitably make withdrawals at some points, but I will make sure to snowflake money back into it after that so I can stay on track.

Here’s how I will allocate my bi-weekly auto-transfers to the new sub-accounts:

Emergency Fund: $60
Wardrobe*: $25
Presents: $25
Vacations: $25
Pampering: $25
House: $40

Total transfers each check: $200

*Snowflakes will go toward wardrobe right now. It needs HELP.

I think this plan will take some of the stress out of the main draws on my spending cash: clothes, shoes, presents, pampering, and vacations. So, in essence, I’ll still be spending much of this money – it’ll just be in a more controlled, easier to manage way. And the great thing is that in the end, it’s still all my money. In reality, should I (god-forbid) find myself in a true emergency, all of these funds would be available to carry me through. ING sub-accounts, here I come!