Empty wallet at the end of the month? Here is why having multiple bank accounts could be your first step in saving money

It is that time of the month for many, especially salaried people, where looking at your wallets and bank accounts will make you cry. Jokes and memes apart, it shows how many people, including those earning well, are broke by the end of the month because they are unable to plan their spendings, often leaving them will little to save. While financial discipline is not something that is achieved overnight, there is always a first step.

Many financial coaches and finfluencers on social media have suggested taking this small step, particularly for those with fixed income, to have multiple bank accounts.

Why multiple bank accounts?

The idea is to split the income, aka salary, as soon as it is credited to multiple accounts. While there is no hard and fast rule on how many bank accounts one should have for this, the larger consensus in discussions in personal finance forums on Reddit is three.

Depending on your spending requirements, split the income into a spending account, savings account and investment account. To ensure that your savings goal is on track, the key is to not dip into other accounts even if it might feel like a hard task in the beginning.

Spending account

As the name suggests, this is meant for your daily expenses, be it rent, groceries, utility bills, travel, shopping, and more. Since most of these are essential spending, you should allocate a significant portion of your earnings into this account, once again subject to your spending habits. Since you don’t have the entire amount as it used to be earlier in this account, it can help you cut down on unnecessary/ arbitrary spending.

Savings account

This is where your rainy day fund will come from. This fund should be for all your emergencies, like unexpected medical expenses. You can also save for a particular goal, like buying a new car/ house in this account.

Investment account

The third account can be the amount you can set aside every month for investments, be it in stocks, SIPs, or mutual funds. Since you are starting your savings journey, the allocation into the investment account can be a small amount, which can be increased gradually.

While having multiple bank accounts can help in bringing financial discipline, it also has some drawbacks. According to a blog post by Axis Bank, the cons of having multiple bank accounts are:

Minimum balance requirement

Most savings accounts come with a minimum balance requirement. Failure to maintain a minimum balance in your bank account might lead to penal costs.

Loss of interest

Different banks offer different bank interest rates on savings accounts. If you distribute money across different accounts, then you are missing out on interest earnings from high-interest-paying banks.

Difficult to keep track

You may struggle to keep track and manage multiple savings accounts simultaneously.