How I Look at My Money in Big Picture Fashion

by David Ning · 7 comments

What would happen if you were forced to spend a couple hundred bucks? Last weekend we had a flat tire on our way to Palm Springs. Actually, it was two flat tires. There was many emotions going through our heads and most of it was frustration as we were wondering whether we can still get to our destination while helplessly waiting in the rain for the tow truck to come. As minutes turned into hours, we finally realized that at least we are still alive and the only thing we really lost was money and time.

Time we have, and good thing we have funds for emergencies like these.

Speaking of emergencies… Oh emergency fund… Thank you for allowing me to feel secured in times like these.

Lots of readers always ask me emergency funds but so many people just don’t have one setup. Some of the reasons I hear are:

  1. Not Enough Money to Start One – Haven’t we heard this one before.
  2. Savings Offer Low Returns – 2% at an online savings account just doesn’t cut it (Actually, one of the minor benefits of this stock market crash is that many people now think anything positive is a decent return)
  3. How Much is Enough? – Then there are others who always want to know how much is really enough, and when they cannot find out (there is really no right answer to this question), they end up not even starting one.

Torpedo the Account Nicknames

Let me tell you something that’s helped me. Forget about naming accounts based on what they are for. I don’t try to name accounts bill pay and another emergency fund and another spending. What I have are:

  1. Checking
  2. Taxable Investment Accounts (Savings, Index funds, ETFs, Stocks etc)
  3. Retirement Accounts (I used to have a 401k too but that’s been rolled over)

Some of the categories might contain several accounts, but the main point is that I group them based on time horizon. For example, checking is used for bill paying and day to day operations, investments are to grow my money mid-term and retirement accounts are for long term.

Where’s the Emergency Funds Then?

Well, it should be obvious that my emergency funds are mainly in my taxable investment accounts. How much do I need for emergencies are irrelevant because how much I have in the accounts are strictly based on my savings goals and how well the investments do.

What if I Wanted a New Office Chair Fund

Many people have great success by setting up funds for what they want to buy. I used to do that, but I have since stopped because I don’t want to deal with so many different accounts. In order to accomplish this, all I do is setup metrics for me to hit. For example, say I have $5,000 in all my taxable investment accounts. I might say that I will buy that office chair when the total gets to $7,500.

Two Main Benefits of the Time Horizon based Classification

  1. Big Picture – One of the advantages of doing this is visibility. At all times, I can see how I’m doing long term without the short and mid term goals convoluting the picture.
  2. Simplification – This might be the best part because it’s so much simpler thinking about my money this way. No more emergency funds, vacation trips accounts, money to buy TVs, shoes and the like. It’s all really your money anyway right?

A Little End Note

If you think about it, this doesn’t say anything about how many accounts you have or how you will use the money. The visibility of my progress helps me achieve my goals.

Do what works best for you, but always remember the big picture.

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{ read the comments below or add one }

  • David says:

    Unique perspective on time based cateogories. I’d be interested in seeing how you break out your accounts within each time period. I noticed that you said each category might contain multiple accounts, but you didn’t give any details about how you structured those.

  • marci says:

    In my case, I don’t have a dedicated emergency fund either – as all my investments are ‘available’ should an emergency present itself – but not everyone has the other investments, so should probably make sure they have the emergency account funded if they do not have access to investment funds.

    I would add two other accounts to your list.
    One – I have a small checking account linked to ebay. I don’t want ebay in my main checking account; therefore I have a small one just for that.
    Two – a cash fund… meaning cold hard cash in hand – hidden somewhere easily available – not in an account. In my case, the electricity goes out here on a regular basis – sometimes 3-4 days, last year 8 days. Can you imagine not being able to use your debit card, credit card, atm machine, etc? Or if it’s the middle of the night and you have to leave town on an emergency? I like to have cold hard cash available for those times, when electronic money usage is NOT available. That’s on top of the cash usually in my wallet for groceries and gas, etc. Cash still has it’s place in our busy world, I believe. 🙂

  • The Passive Dad says:

    It’s interesting that you don’t believe in having multiple account names as well. I’ve sort of put it off, but mainly because I procrastinate with these things. We do have our emergency account and checking account, but thought about create sub accounts too for long term savings. I’ve read some people have accounts for children like braces, school supplies, and braces. For now we’ll just stick with savings.

  • My OCD won’t allow me to open too many accounts. Once I see clutter anywhere I start deleting/throwing away stuff.

  • Epicview says:

    Thanks for presenting a brand new way of thinking of things. Trying to keep track of a dozen individual accounts gets really confusing and inhibits you from reaching your goes. Now that I’ve read your post, it seems obvious, but its not something I would have thought of.

  • I agree with keeping everything simple. I don’t have different savings accounts for different goals, I think it’d be too confusing and hard to keep track of. Plus I find it more satisfying to see a big amount of savings rather than a few smaller amounts, even if it all adds up to the same thing in the end.

  • Grant Baldwin says:

    Good thoughts…

    It’s very easy to end up with multiple checking accounts for various purposes and countless savings accounts for different future purchases. Before long, it all becomes a little overwhelming and tough to keep track of.

    I think we would all agree in the principle that “less is more.” Simplify your finances, so you can focus on the big picture.

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