“Hey Dad, how many money accounts should I have?”

(Opening an account with Fidelity Investments using any link on this page, I may receive compensation. I have several active accounts with Fidelity Investments)

The minimum number of accounts I recommend is 4, kids:

Now, that doesn’t mean that you need to work with 4 different banks, it just means you need to have separate accounts for different purposes.  The way I see it is, you need:

• Savings Account – for saving your money for emergencies and future “needs”

• Checking Account – for paying your bills and paycheck deposits

• Brokerage Account – for growing your money (Stocks, Mutual Funds, Index Funds, etc.)

• Allowance Account – for spending on whatever you want, no questions asked

I highly recommend that your Allowance Account be in a different bank than your Savings, Checking and Brokerage accounts.  You can use that 0.04% interest account bank, with the multiple, easily accessible ATMs, for your Allowance Account.  You’re not trying to earn money on that account.  You can spend that monthly allowance however you want, whenever you want, on whatever you want.  But when that allowance money is gone, it’s gone.  You’ll need to wait until the next month for your next monthly allowance.  My monthly allowance is $500.  And if there is money left at the end of the month, it gets added to the next month’s allowance. This strategy keeps me from overspending and at the same time it doesn’t feel restrictive.  This leads into a budget conversation that we will save for a later date.

The number of accounts increases as your personal needs increase.  For example, I have 3 savings accounts:

• Emergency Funds Savings Account – 6+ months of monthly expenses (for emergencies only!)

• Vacation Savings Account – estimated expense for the next vacation (Aruba)

• Temporary Savings Account – $400 bonus just to open the account (free money, why not?)

Then I have 4 Retirement Accounts:

• 401K - Mutual Funds

• IRA - Individual Stocks

• HSA - Cash and Mutual Funds

• Roth IRA - Individual Stocks

I also have a Brokerage Account, outside of my retirement accounts, at Fidelity Investments, that I use for day trading.  “It’s fun when you’re making money”.  Stocks and Funds in my retirement accounts are what I call, “buy and hold”.  I’ve picked stocks and funds in those accounts to hold for the long term.  I expect them to grow exponentially over the next 10-20 years.  And I have my Checking Account and Allowance Account too.

This multiple account strategy is one of the key steps in improving your overall financial health. 

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