Saving for your future is part of our financial plan to buy a home or for retirement, not to mention the occasional vacation. We have been told to have a checking account, savings account, as well as a retirement fund, but is there more to saving than the old rules imply? Is there a better way to save for vacations, pay bills, and eventually retire to the Caribbean?
When it comes to finances we set a budget and do our best to stick to it in hopes that we will be able to save more and more while creating financial security. However, even with financial information at our fingertips, one thing we overlook are types of banking methods. There are multiple ways to ensure financial security including a method of having multiple bank accounts were each designed with specific intent. Instead of using just one checking account and one savings account you use multiple accounts to aid in reaching certain financial goals.
Financial expert Sahirenys Pierce, frustrated with limited information on method banking, created the High-5 Banking Method to help keep you on budget and build wealth.
WHAT IS THE HIGH-5 BANKING METHOD?
The High-5 Banking Method refers to the number of bank accounts, two checking accounts, and three savings accounts, that are considered the “perfect” amount to have. These separate accounts are categorized with specific goals while paying bills on time and building an emergency fund.
1. Bills - Checking Accounts
Your bills are considered a mandatory expense, so those bills must be paid regularly. These bills take up a significant amount of your income and keeping those bills in good standing will have a lasting impact on your credit.
Examples: Rent, Mortgage, Utilities, Car Payment, Groceries
This account not only helps you organize your bills but allows you to put money away for other upcoming bills. This type of account also illustrates roughly how much you spend in a particular month, allowing you to see how much money you need to set aside for upcoming bills.
2. Lifestyle - Checking Account
A lifestyle account refers to your expenses that are not a bill. This boils down to your “wants”, by allocating a certain amount of money for events or entertainment.
Examples: Eating Out, Hair Salon, Spa Days, Bars, Gym Memberships, Netflix
This category is an important and at times overlooked part of expenses. It can be hard to foresee a get-together or happy hour or birthday party but with proper planning, it can be more feasible to factor in these costs. Many times not planning for “fun” expenses can lead to overspending, which is why this account is so important. Each payday moving money into this account helps you create a routine that allows you to still enjoy your life while spending responsibly.
3. Emergency Fund - Savings Account
One of the most important accounts you can create is an emergency fund account. This account exists in a separate account that equals 3 to 6 months of your bills based on your financial situation. Creating this safety net helps to combat any unexpected expenses such as loss of a job, hospitalization, car repairs, or home repairs.
4. Long-Term Goals - Savings Account
The use of this account to allocate money for a long-term goal that will take longer than 12 months to achieve. Since these big goals come with heftier price tags you want to allow yourself the time to save properly without hampering your other financial goals or commitments. This is why regardless of the amount of time it will take to reach a particular goal you should always keep this money in a separate account. Not only will this illustrate the progress of your goal it will keep you from spending money allocated for other expenses or wants.
Examples: Mortgage Down Payment, Vacation Abroad, Wedding
5. Short-Term Goals - Savings Account
Your final account is an account reserved for goals you want to achieve within the next one to 12 months. This account can be versatile and can also be used as an account to help save and prepare for any other upcoming expenses such as car maintenance or a birthday party.
Examples: New Laptop, Christmas Presents, Road Trips, Concerts, Annual Expenses i.e. bulk expenses, car registration.
This may seem like you have to open all five accounts today, but that isn’t the case. You can start with accounts that are immediately beneficial to you such as bills, lifestyle, and emergency funds accounts. If you don’t have any long-term goals at the moment then wait to open this account. From there as you continue to define and refine your financial goals you can add the other accounts as needed.
At the end of the day spending purposely is the ultimate goal of the High-5 Banking Method. Pierce also recommends not using one financial institution for all accounts in the unfortunate event technology fails at one institution you will have access to funds from other accounts. One method to consider is automating your deposits each payday. Not only will this divide your funds automatically without you doing the math, but it will also create a routine for you without thinking, allowing you to save easier.
