How to allocate savings into buckets

amother

OP ↓

Thu, Dec 19 2024, 9:09 am

I don’t know how to word this correctly. I understand finances, but until recently I never had an opportunity to put away a significant amount to savings. Now bh our income is going up and I want to start saving more. I also want to allocate the savings in advance to separate funds like- down payment, bar mitzvah, vacation, emergency fund, etc.

What’s the best way of doing that? I don’t want to open a bunch of savings and investment accounts, but I want to pay for these larger expenses with money I put away specifically for that, rather than a big savings bucket.

amother

Canary ↓

Thu, Dec 19 2024, 9:22 am

First save for retirement. Max out your IRAs- 14 k a year if you can, or 401k if you have from work/business.

If a bar mitzvah is closer in time, such as 3-5 years or less, put the money in a CD or high yield savings account or bonds.

For weddings do index funds. Personally we have one big account not separate. But you can open separate index funds if you want.

Emergency fund should be in high yield savings account. Vacation could be in high yield savings or regular savings.

amother

Jetblack ↓

Thu, Dec 19 2024, 9:46 am

I agree that it makes little sense to into muliple accounts based on very limited categories absent unusual circumstances.

Savings should be viewed as either

Short Term - e.g. those which one might need to access immediately for an emergency. The recommendation is that these cover six months of living expenses in the event that one loses income. They should be in an FDIC account and one wants them to be accessible and completely secure rather than focusing on possible returns

Savings That Have Tax Benefits - there are savings such as 401 (k), Roth Accounts, IRA Accounts, 529 accounts, HSA Accounts. Depending on whether they are long term like retirement accounts or moderate like 529 or shorter term like an HSA account one either needs liquidity or seeks appreciation.

There might be certain psychlogical benefits in creating an account for a specific purpose that is goal oriented but I think having many of these defeats the purpose of having a goal.

amother

Honey

Thu, Dec 19 2024, 9:58 am

amother Jetblack wrote:

I disagree and many money experts disagree.
Depending on when you need the money out there will be different needs
Since I start saving for my kids weddings and bar mitsva from birth I put in one type of investment account.
Since I plan on buying a house in the next 3 years I will need a buffet account
And you are eliminating investments which is a big part of the financial picture
I personally have over 8 different accounts all doing different things.
( some are investing just for sake of investing while some are earmarked towards specific purchases)

amother

↑ Jetblack ↓

Thu, Dec 19 2024, 10:28 am

amother Honey wrote:

We are saying the same thing - different types of savings depending on when you need to access them.

I was saying that it makes no sense to have multiple accounts that are specifically for a single purpose.

amother

↑ OP ↓

Thu, Dec 19 2024, 10:28 am

amother Maroon wrote:

Personally I don't see the point in making separate accounts for everything.

It’s a form of budgeting and managing our spending/savings habits. I want to go to Israel this summer. It’ll be at least 15k. Like this I could put aside 2k every month and I know that by the time the summer comes around, the trip’s already paid for. Same with the bar mitzvah that’s in a year.

We have a spending problem (especially dh). If I leave money in the checking account we’ll spend it. I don’t want to touch the savings account unless we need to or we’ll use that up too. And no, I don’t want to open 10 different savings accounts.

What I’m looking for is a savings account with different “envelopes” so we can save for the big things and small things separately and can enjoy the money that dh works hard for without it disappearing into thin air.

amother

↑ OP ↓

Thu, Dec 19 2024, 10:35 am

amother OP wrote:

To be clear, we already have 2 savings accounts and 2 investment accounts, plus 401k’s. I’m looking to break it up further, especially the short term savings piece.

amother

Magenta

Thu, Dec 19 2024, 10:38 am

amother OP wrote:

Why?
I mean, I guess it depends where you bank and what kind of accounts but we have been able to open multiple accounts and we don't pay any fees for them. So I can't see any downside. It keeps things very clear cut.

amother

↑ Jetblack

Thu, Dec 19 2024, 10:39 am

amother Honey wrote:

As I posted, there may be certain psychological benefits in creating an account for a specific goal. In your example, it might be easier to fund an account earmarked for a trip to Israel. It has an end date - it has a specific amount necessary and you can determine how much to save each month to reach the goal in time.

For some people it might be for a down payment. Some single women save for their wedding and furnishing their home.

I was discussing having some many separate accounts that it obviates the psychological benefit of having a focused account for a specific goal.

For less specific goals it is better to allocate amount different types of needs - short, medium and long term and then save a certain percentage of income regularly and allocate among those in terms of priority. Short term emergency having priority - tax advantage savings having more priority than generally investments.

amother

Springgreen

Thu, Dec 19 2024, 11:26 am

We have separate accounts earmarked for different things
It helps us be organized. If we have money flying around it stresses me out and if it sits in the checking account I spend it
We have Roth, investment account that we don’t know what it’s for yet, another investment for our baby which is earmarked for bar mitzvah and wedding
Then we have emergency fund, and another savings account for vacations where all our cashback goes, another one where all our maaser gets transferred directly into, and our down payment is in a cd account
It sounds complicated but it’s really not

amother

Candycane

Thu, Dec 19 2024, 4:03 pm

Ally bank is great for this. You can use different buckets in one savings account and you can also do instant transfers between savings accounts. Their interest rate is also pretty good as long as you get a long-term account. Remember a savings account or a money market account? You can only make six transfers a month, but you'll get decent interest while a checking account. You will get lousy interest though you can make unlimited transfers.

Still, anything long-term like 5 years plus really should be invested in a mutual fund. Which means it will fluctuate and be a little harder to do buckets with. A simple way is to pick three or four mutual funds that you think are good and randomly assigned one to each clause. Like the S&P index fund will be for the weddings while the total market index fund will be for Bar Mitzvos. And you can keep both funds in the same account.

amother

↑ RosePink

Thu, Dec 19 2024, 4:07 pm

amother Candycane wrote:

correct!
my buckets in ally as follows:
Emergency
vacation
home
occasions

rest of the money is in sp500