In my last financial post I talked about my budget. My creating a budget spawned from the desire to save more money than I’d been able to save in a while. You see, I had savings, but I seemed unable to increase them.

Analyzing what prevented me from saving more revealed one obvious but important fact: if I have easy access to my savings, I’m likely to splurge. This spending of course depletes those savings. Moral of the story? If I wanted to increase my savings, I had to cut off my access to them.

For the last many years I’ve functioned with one bank account (Checking, Savings and credit card) and one credit union (Checking and Savings). In order to separate spending money and savings, thus making splurging less likely, I decided to make my bank accounts the spending ones and my credit union the savings one. In order for this to succeed, I’d have to stop carrying my credit union debit card around. In fact, I had to treat the card and the accounts as dead to me.

This I did, an important step in building my savings. My paychecks already went to my bank account, so as soon as I set up an automatic, monthly transfer to my credit union, I could essentially pretend this account didn’t even exist. Money there was off-limits; money with my bank I could spend as I pleased.

Although this worked and exercised my self-control, I found it too restricting. Also, I’ve heard numerous encouragements over the last many years to have rainy-day savings and long-term savings. I only had long-term.

I decided to make proper use of each account I have, except for my credit card which I rarely use at all. This meant creating a spending account (bank checking), a rainy-day account (bank savings), a mid-term savings account (credit union checking) and a long-term account (credit union savings). In addition to assigning each account a specific purpose, I set up automatic transfers between each. This created a whole set of levels between me and my money.

How does each account work? Well, I can use the money in my spending account any way I need or want. As long as there’s money in this account, I can splurge all I want (up to that amount of course). Monthly bills come out of here mere days after paychecks deposit. Daily automatic transfers move money from this account to my rainy-day account.

The rainy-day account acts as any rainy-day account. Unexpected expenses can be taken from here. So far I’ve had none. At the start of each month, I automatically send to my mid-term savings a smaller amount than deposits over a month into my rainy-day account.

My mid-term savings is my “extreme emergency” account; essentially it’s my backup account in case my rainy-day expenses must be overdrafted. It’s also a retainer account (I think I’m using that term correctly); my mid-term savings account is mostly just a place to hold money until I know what I’m doing with it. I can use it to pay off student loans (because ultimately that’s like saving money), I can put it towards investments (stay tuned for a post on my experiences investing), or I can put it into long-term savings. Each month, one-third of my mid-term savings automatically moves into long-term savings.

Those long-term savings? Untouchable. It’s like saving for retirement in a form that’s not an IRA or Roth IRA account (and therefore extremely low-yielding too). I’m not sure what could make me access the money in this account.

So far this method of divvying up my money has worked real well. I’ve been following it for almost a year now, which is quite impressive for me. The great thing about this, plus my budget, is that while I’m still allowed to splurge, the temptation has decreased drastically. Also, my splurges come from a lot smaller amount of money than before. Self-control, baby!