How to Organize Your Financial Accounts By Time

4 minute read

Do your finances feel disorganized? Do you want to achieve financial security but aren’t sure where to start? If so, you’re in the right place! In this post, I’ll share some simple tips to help you get your finances organized and on track. 

Watch on YouTube: How to Organize Your Finances By Time

First off, let’s talk about the mental framework for organizing your finances. Instead of thinking about which bank accounts to open first, consider a different approach. Imagine all your money in one big pile in front of you. Now, ask yourself: when do I need to use this money? Specifically, when will you need it, and what for?

Having an idea of when you might need the money can help you decide where to keep your money. This helps you prioritize your financial goals and allocate your resources accordingly.

Now, let’s break down the four buckets for organizing your money:

1. Current Needs: This includes expenses you need to pay for immediately, such as this month’s bills and potentially the next 1-2 months. It’s essential to have enough funds to cover your immediate expenses to avoid living paycheck to paycheck.
2. Emergency Savings: This money acts as a safety net for unexpected expenses, like a sudden loss of income or a medical emergency. Having an emergency fund provides peace of mind and financial security during challenging times.
3. Short-Term Savings: This is money you may need within the next 3-5 years for major life expenses like buying a car, going on vacation, or moving to a new apartment. Setting aside funds for short-term goals helps you avoid dipping into your emergency savings for non-emergencies.
4. Long-Term Savings & Investments: This money is for future goals that are at least 5 years away, such as retirement, buying a home, or planning for a career change. Investing for the long term allows your money to grow and can provide financial security in the future.

Now that you have a mental framework for organizing your finances let’s discuss the types of accounts to consider for each bucket. Please note that these are examples, and may not constitute a comprehensive list of all the accounts available to you. This is for informational and educational purposes only, and not considered financial advice tailored to your situation.

1. Current Needs:
   • Checking accounts: For current needs, checking accounts are typically essential for immediate access to funds for everyday expenses. Consider having 1-2 checking accounts to separate your bills from your other spending.
   • Cash: Sometimes, it helps to carry a small amount of cash for cash-only purchases where cards are not accepted.
2. Emergency Savings:
   • High-yield savings account (online savings accounts): A high-yield savings account is a popular choice for emergency funds due to its accessibility and higher interest rates than traditional savings accounts. High-yield savings accounts are typically online accounts that do not have physical in-person branches. Consider keeping your emergency savings in a separate account to avoid spending it on non-emergencies. 
   • Certificates of Deposit (CDs): Another option for emergency savings funds are Certificates of Deposit. These sometimes offer favorable interest rates, however they require you to keep your money in the account for a specified amount of time in order to receive the guaranteed rate of return. For emergency fund purposes, they can still be used strategically using a strategy called CD Laddering.
   • Money Market Account: Not to be confused with Money Market Mutual Funds (which are investment accounts), Money Market Accounts are similar to high-yield savings accounts in that they can earn you a higher yield (APY) than a traditional savings account. What’s different is that sometimes Money Market Accounts come with check-writing privileges. Additionally, some may require a larger minimum deposit to open the account.
3. Short-Term Savings:
   • Similar to emergency savings funds, a high-yield savings account is a popular and suitable option for short-term goals. Consider using sub-accounts or multiple accounts to track different savings goals effectively.
   • Additionally, if you know exactly when you’ll need the funds, you’ll have more flexibility on using other time deposit options such as CDs.
4. Long-Term Savings & Investments:
   • Retirement accounts like a 401(k) or Individual Retirement Accounts (IRAs) offer tax advantages and should be prioritized for long-term savings. While they offer tax advantages, funds cannot be withdrawn until age 59 ½ without penalties. Additionally, consider opening a taxable brokerage account for additional investments outside of retirement accounts. Whether or not you should “max out” these accounts – meaning, contribute to the legal limit in the specific year – depends on your overall financial and retirement goals.
   • 401(k) or 403(b): 401(k)s and 403(b)s are popular pre-tax employer-sponsored retirement accounts that you cannot open on your own. Often, employers who offer these types of accounts will provide an incentive employee match, to incentivize employees to contribute to their own retirement accounts. The pre-tax benefit means any money you contribute to it won’t be income taxed in the current year; taxes are deferred until you withdraw money during retirement.
   • Individual Retirement Account (IRA): Traditional IRAs and Roth IRAs are self-funded and self-managed retirement investment accounts. Traditional IRAs are tax-deferred and Roth IRAs have income tax-free growth.
   • Taxable Brokerage Accounts: Taxable brokerage accounts, unlike retirement accounts with tax benefits, don’t receive favorable tax treatment. Yet unlike retirement accounts, assets in a retirement account can be accessed and withdrawn any time. 

Remember, everyone’s financial situation is different, so there’s no one-size-fits-all approach to organizing your finances. It’s essential to assess your goals, risk tolerance, and financial needs when choosing the right accounts for your situation. The accounts mentioned above provide an example framework of which types of accounts to consider putting your money in depending on when you will need the money. The examples optimize for financial benefits such as higher returns, optimized risk, and tax benefits.

In conclusion, getting your finances organized is a crucial step towards achieving financial security and building wealth. By following these simple tips and creating a plan for your money, you can take control of your finances and work towards your financial goals!