Opening a savings account for the first time is a significant milestone. It gives us control over our finances, allowing us to receive income, like our salary, and make payments for monthly expenses.
Traditionally, the three local banks in Singapore have dominated the savings account landscape, with most customers having just one or two accounts to manage their finances. However, as the financial system and its offerings have evolved, so have society’s banking needs. Today, it’s more practical to have multiple savings accounts.
Clear Segmentation For Your Finances
One key reason to have multiple savings accounts is that they allow you to allocate your money for specific purposes. By directing certain amounts into designated accounts, you can separate your savings goals for monthly expenses, an emergency fund, regular investments, or insurance premiums.
This disciplined approach helps you manage your cash flow more effectively, ensuring that you’re systematically prioritising your financial goals.
For instance, if you’re building an emergency fund (typically 6-12 months of expenses) and have $20,000 set aside, you could place that amount in a higher-interest savings account and continue to contribute monthly until you reach your goal.
By ring-fencing funds for different financial objectives, you’ll have a clearer view of your progress. This transparency saves you time and effort when budgeting and ensures you stay on track.
Increased Financial Discipline
This transparency in tracking your financial goals also helps you stay disciplined when allocating money for specific purposes.
Firstly, it makes it easier to spot areas where you may be overspending. With just one savings account, overspending can often go unnoticed as everything is lumped together. However, even small overspending across multiple areas can add up and take a significant bite out of your savings.
Separating your savings goals from your monthly expenses makes you more psychologically motivated to stick to your plan.
Having a dedicated savings account for your emergency fund also helps you prepare for unexpected events, such as job loss or medical expenses, without needing to tap into other sources of capital. This approach builds financial resilience and reduces the likelihood that you’ll need to sell investments—never ideal, as you want your investments to continue compounding—or dip into the capital of your other accounts.
Practical & Automated
One of the most significant advantages of having multiple savings accounts is the ability to automate payments or investments more effectively.
With this enhanced control over automating cash flow, you can set up automatic transfers after receiving your income, ensuring you’re consistently contributing to specific accounts for different goals. An added benefit is separating short-term needs—such as daily or monthly expenses—from long-term goals like investments.
By distinguishing between the two, you reduce the temptation to dip into funds that are earmarked for specific purposes, helping you stay on track with your financial plans.
DIY Long-Term Financial Planning
With technological advancements and growing banking options, many individuals are opting to take a “do-it-yourself” (DIY) approach to financial planning.
In Singapore, we’re fortunate to have a relatively simple and straightforward tax system, which allows many people to manage their finances without necessarily needing paid professional advice from certified financial planners.
By setting up a system for your investments, you can reinvest cash flow from those investments back into your wealth-building process. For instance, dividends from your investments can be reinvested, helping to grow your capital and accelerate progress toward your long-term financial goals.
Having multiple accounts also helps you separate short-term and long-term funds, protecting your long-term goals from “lifestyle creep” while ensuring that short-term, regular expenses are properly accounted for and budgeted.
Read Also: Guide To The 50/30/20 Budget Rule, And How It Helps You Save For The Long-Term
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