One thing I've always struggled with finance-wise is how to manage higher-level budget categories across a limited number of accounts. For instance, I currently maintain the following types of accounts:
- Checking account - bills and everyday expenses
- Savings account - Emergency fund/anything else
- Retirement account (401(k))
- Personal brokerage account (for small investments; comes with a checking account)
I don't really like how this is setup, though. In my mind, it would make more sense to separate things according to usage. Consider this:
- Checking 1 - bills
- Checking 2 - everyday expenses (gas, food, etc.)
- Savings 1 - Emergency fund (grow to 6-12 months living expense)
- Savings 2 - Vacation/"rainy day" fund
- Savings 3 - "Big Expenses" fund (new cars, house down-payments, etc.)
- Retirement/investment accounts
Perhaps this is naive (and specific to my financial plans), but I think it represents what I'm going for: a way to manage my money in broad categories. My desire is really two-fold:
- Visibility - I feel like I'm reaching goals by seeing these categories grow
- Accountability - I may be less tempted to pull from one category to finance another (a big problem I have now).
Obviously, I've used accounting and budgeting software to manage money at a granular level (and still will). I certainly wouldn't extrapolate this approach to having very tiny accounts for every budget category. However, I feel as though some basic compartmentalization would be useful for the reasons outlined above.
Am I way off? What are the pitfalls to this approach? Are there any advantages/ways of going about this that I have missed?