The 3 Types of Accounts You Should Have To Manage Your Finances

Managing our money can be complicated right? I'm a big fan of simplicity and I've come up with a simple way to get your accounts in order so you can concentrate on what you do best and not have to spend countless amounts of time transferring money back and forth. In your personal life, I recommend having just 3 bank accounts for your finances (cash):

1) Operating Account

2) Anticipation Account

3) Emergency Fund

Your Operating Account is typically your checking account. This is where all of the income comes in and all of the bills are paid. If you've got direct deposit, your money will be deposited here. If you are budgeting the way I teach, you'll know exactly how much you are spending on your bills and how much you are saving toward your Anticipation Funds.

The Anticipation Fund/Account is the money that isn't necessarily spent this month, but you are anticipating spending money on this line item in the future. For example, you want to save money for a vacation you are taking in 7 months and it will cost $5000. You can't spend $5000 on your vacation bills all in 1 month unless you bring in significantly more than that. So, you need to systematically save 1/7 of the $5000 each month so you'll have the $5000 by the time you get to your vacation. This happens to equal around $714/mo. So, you'll put away this amount each month so you can pay for your vacation.

The same goes for ALL of your Anticipation line items. Some of these can include - Vacations, Cars, Technology, Health, Hobbies, Clothes, Maintenance on your home or car, Insurances (due annually), Bills that are not charged every month, etc. The more you can anticipate, the less surprises you'll have and you won't need to use your Emergency Fund.

The Emergency Fund/Account is for TRUE emergencies. These are things that come out of left field that you can't really anticipate. However, I believe you can anticipate emergencies, you just don't know when they'll happen. Emergencies happen to everyone so be ready. There are all sorts of thoughts about how much your Emergency Fund should be but there are many factors to take into consideration. I would say start with 1 month of income. Then, after you've paid off your debt and are getting better with money, bump that up to 6 months of expenses. This should be enough for most households. But don't forget to replenish this if you end up using it because guess what...another emergency will come around at some point.