Types Of Bank Accounts Every Family Should Have

 

There is no agreement among money managers as to how many bank accounts an individual or family should have. Experts have come up with various numbers.

According to Funcheap Orfree, there are five bank accounts every family must have if they seek to manage their finances effectively.

Most families have one savings account and one current account. This has been the norm since dinosaurs roamed the earth. While it works well for many, it is believed that having only one or two bank accounts can make it harder to keep track of your money.

The fact is, most families statistically have trouble making and keeping a budget. This means that the system may just not work that well.

Below are five bank accounts every family should have:

1. Family emergency savings

As a rule, 20 per cent of your income should automatically go into savings each month, and this is the ultimate account for your savings. As a rule, this account is for absolute, dire “we are going to lose our house next week if we don’t do something” emergencies. Picture it as the fireproof apocalyptic vault hiding behind concrete walls in your basement, or the piggy bank you have to shatter to open. You should never touch this account unless it is your absolute last resort.

Savings money should be automatically withdrawn from your paycheque every month (20 per cent ideally) and deposited into this account. You should pretend that this money doesn’t exist when considering your income/budgets.

It needs to be an “out of sight, out of mind” account. Don’t even bring it up when calculating your money as a family, and NEVER consider it as an option for pulling money out of when needing to pay for something…unless it’s a literal life-or-death situation.

You can open this in any savings account, but it is recommended that you open this account through an online bank.

With this account, you can effortlessly protect your family from the worst-of-the-worst circumstances.

2. Family regular savings

This is your “holding tank” account; the savings account that you can tap into when needed. This account is used for holding three months’ worth of cash to live off at all times in case of a short-term emergency. It’s mainly used to hold money you are using to save up for something pre-planned (down payment on a house, new bedroom furniture, major home repairs, family vacation, new car, upcoming wedding, etc.), and to pay for unexpected expenses and emergencies (car repairs, new tires, unexpected home repair, etc.).

Automatically draft 10 per cent from your pay cheques to this account every month until the three months of cash is saved up, with the other 10 per cent going to your ‘Family emergency savings account’.

3. Family current account

This is your “home base” account; the account where all pay-cheques/sources of income go initially. Your money starts here, then is transferred and allocated to other accounts. This is where you pay for minor car/home repairs, oil changes, utilities and all other bills (except for medical bills, more about this below), tithing/donations, and other family expenses. All bills are paid from this account, preferably on auto-pay when possible to avoid late fees.

Money shouldn’t stay for long in this account, because it will be divided up and allocated to other accounts shortly after depositing your pay-cheque. Set up auto-transfers to other accounts to streamline the process of sending your money where it needs to go. Once all your money has been deposited to this account and sent to where it needs to go, it will be easy to see if you have money leftover at the end of the month! Big pat on the back for leftover, un-spent money. Any money left over in this account should go to ‘Family regular savings’.

4. Wife’s current account

Your monthly budget comes from the ‘family current account’ to this account every month. The money you spend for the month, however, you see fit. Whether you use cash, debit card, or credit card, it all comes out of this account. It makes it easy to keep track of your budget, will make it hard to over-spend, and will allow you the autonomy to use your own methods for budgeting and spending for your family, and will give you a place to keep your own “fun money”!

You should use this money to cover your budgeted expenses for the month, which needs to be determined in advance by each individual family. Sit down and write out every single thing you spend money on, then divide up responsibilities! If you do the cooking, you should buy the groceries so you know what you need.

5. Husband’s current account

This is the account you use to pay for your budgeted monthly expenses. The same rules apply as with the ‘Wife current account’. By having the husband and wife current accounts, this gives each parent autonomy to spend, however, they see fit while still being held accountable for the overall budget amount.