Spreading Savings Across Multiple Accounts May Not Be A Viable Option For Many Individuals

If one pays due respect to traditional wisdom one may take the view that holding many different types of savings and checking accounts is essential for organizing finances and for ensuring efficient money management. But according to erudite professionals, this may not be the ideal pathway to financial success. In fact, citizens may save substantially if they restrict their accounting to single accounts.

Hidden implications of Banking sector strategies

Banks are literally falling over themselves offering multiple accounts in package deals like discounted airline tickets and such aggressive sales tactics may be pushing people towards wrong choices. It is an undeniable fact that the average savings ratio of the American citizen is a pathetically low 5% and far from improving matters there appears to be sustained inability of individuals and families to survive life’s expensive ride and recharge their savings accounts.

Understanding the craze for holding multiple savings accounts

The craze for multiple accounts has less to do with mathematical correctness or accounting efficiency. The average American is still preoccupied with hosting multiple accounts to channel multiple expenses, but these expenses are overshooting his budget and financial capacity. Having a single account reduces the confusion and a man knows exactly where his resources stand when any item of expenditure looms over the horizon. The accounting simplicity of a single account enhances one’s decision making power.

Multiple savings accounts encourage wasteful expenditure

By creating multiple accounts we wrongly think that we are accumulating savings in a systematic way and we are financially stronger. The auto title loan reality is that we are creating more avenues to spend our money and savings is relegated to the background. To put it another way, we open more and more savings accounts, we start thinking that we are sitting on a mountain of savings that will comfortably help us meet expenses but in reality, just the opposite may be happening. We are actually justifying our need to spend recklessly thereby destroying our savings mentality.

For the sake of debate, let’s simply assume that multiple savings accounts are a big deal. Now ask yourself what am I doing to control my cash flows? Do I have a system in place that tells me precisely how much in aggregate I have in the account in my accounts, every time I think of footing some bill? The harsh reality is the most people wouldn’t have a clue how much they have in their accounts overall. They have only one dominating all-consuming thought – I have an expenditure lined up and “I think” my balances in other accounts can take care of that expense. The system of multiple accounting may work only if we judiciously employ a software app that adds up the figures and tells us our net position at any time day or night.

In fact, a University survey sought to study the difference in patterns of savings and expenditure among participating students that were given a regular income for performing various computer related jobs. Many students operated multiple accounts and some had single savings accounts. Students were given the option of accumulating savings in their accounts or spend their earnings on university books, stationary and clothes. It was revealed that students that operated single savings accounts were more motivated to save money than the students that possessed multiple accounts. It was noted that the issue was not the technical competence or mathematical skills or abilities of the students but the level of motivation to save that differentiated multiple account holders and single account holders.

But multiple accounts do serve a purpose, or don’t they?

Proponents of the multiple account strategy proclaim that holding different savings accounts is not a disadvantage if one is focused on one’s savings goals and that such a person should spell out clear cut strategies to save for different goals. For example, a person may opt to have one account for accumulating an emergency fund for future contingencies, another for buying a car, and yet another account for buying a home. He may strategize to push 20% into the emergency fund and 10% each into the car and home account. Gradually, as he tops up his emergency fund, he can accelerate the savings ratio for the remaining accounts. Such a systematic individual may find a consolidated account confusing as it might not tell him how much he has allocated for each different goal.

Ultimately, it is up to each individual to choose the strategy that helps him fulfill his goals and it is equally important that he controls expenses to maximize his savings.