Managing multiple bank accounts will help us great to manage the clean finance track records. Maintaining all transaction in one bank account will leads some difficulties. I’m assuming you are an salaried individual. Basically an salaried individual needs at least 5 bank accounts. So that we can allocate the responsibility for the each bank account separately.
- Income Account – To get your paycheck & income related transactions
- Transaction Account – Used for the day to day spendings, subscriptions etc
- Debt Repayment Account – Used to pay the EMI or credit card transaction
- Donation Account – Used for the donation related contributions
- Demat Account – For buying stocks for long term.
Income Account:
The income account needs to be used for only receiving the paycheck / salary. Basically this account shouldn’t be used for any other transactions. The only transaction you are allowed to make is to your transaction account. So that you can streamline all the income to this particular bank account. Say for example if you are maintaining the budget plan something like 50% of your income should go to the fixed expenses then each month paycheck amount you can transfer 50% to the transaction account.
Never use this account for making any other payments. Either the transaction needs to go to the transaction account or any other investment related ones.
Transaction Account:
This account is used for your day to day transaction like
- Groceries and vegetable purchases
- Monthly bill payments for
- Internet
- TV
- Netflix
- Amazon Prime etc
- Small Medical expenses
- Shopping
- Movies etc
when a friend borrowed you small money they can send it back to this account.
Debt Repayment Account:
The ultimate goal of everyone is to avoid the bad debts and keeping only good debts like mortgage. Suppose you have any ongoing loans and EMI you can transfer that particular amount to the debt repayment account. You might have any one or combination of below loans
- Credit card EMI
- Home load EMI
- Personal Loan EMI
- Car Loan
- Education Loan
So you can transfer the respective EMI amount to this particular account and you can setup autopay feature.
Donation Account :
This society invested on us directly and indirectly. According to me we need to spend some small portion of our income like 2% to 10% on donation related activities. Say for example,
- giving a high quality pen for someone in your relatives or friends who is going to write school / university examination.
- Giving birthday gift to the family member or friends.
- Spiritual / Church donations
- Donation to charities and orphanage
These small spendings over the time will help you to earn good name and reputation in the society.
Demat Account:
Ideally 20% to 30% of your income needs to go the long term savings. These funds will help you create the create the strong portfolio over the year of 20 to 25 years. It is recommended to accumulate 3 to 6 months of fixed expenses in the income account then we can start other investments slowly.
Bottom Line:
Basically using the multiple bank accounts really beneficial instead of single bank account for any type of transaction. Specially the income, investment and donation track records will be very clear.