What Are the Benefits of Having Separate Salary and Savings Accounts?
If you’re just starting your career, you may not have thought about having separate salary and savings accounts yet. But doing so can make managing your money a lot easier. It assists in tracking your income, helping you create a reserve without combining them with your everyday expenditures. For those who are not in the know, it is a very effective method of keeping your financial books in order by having your accounts separated. Let’s learn how.
Understand the purpose of each account
Having a salary account makes tracking your monthly income and managing daily expenses simpler. This account is typically used for regular transactions like bill payments, shopping, and other personal expenditures. On the other hand, a savings account is dedicated to building wealth. By keeping it separate, you minimise the risk of spending your savings impulsively. Additionally, this setup helps you prioritise saving by automatically transferring a portion of your salary each month into your savings, ensuring you stay on top of your financial goals.
Advantages of having a separate salary and savings account
· Easier expense tracking
When you use your salary account for daily expenses, it becomes much easier to see where your money is going each month. You can quickly identify patterns in your spending and make adjustments if needed. This clear distinction helps you avoid mixing everyday expenses with your long-term savings, keeping your finances organised and easier to manage.
· Better savings discipline
By having your money saved in another account you develop a kind of barrier that would discourage you from withdrawing the money to use in other non-essential expenses. This separation assists in developing discipline because the money put aside cannot be easily used for frivolous spending. In the long run, the habit becomes helpful in saving money to cater for future needs without necessarily having to delay the gratification.
· Automated savings
Setting up automatic transfers from your salary account to your savings account ensures you save a portion of your income regularly. This “set-it-and-forget-it” approach takes the guesswork out of saving, making it easy to prioritise your financial goals. By automating this process, you remove the temptation to spend first and save later, increasing the likelihood of meeting your savings targets.
· Improved financial planning
Having separate accounts helps you allocate funds more effectively. You can easily budget for immediate expenses from your salary account while reserving your savings account for long-term goals, like investments or major purchases. This setup makes it easier to manage both short-term and long-term financial objectives without confusion or overlap.
· Higher interest earnings
Savings accounts generally offer higher interest rates than salary accounts. By keeping your money in a dedicated savings account, you can benefit from compounding interest, which helps grow your savings over time. This ensures your money works for you, maximising the potential returns on your hard-earned income.
How to leverage each account: Savings vs salary
Pay all your day-to-day expenses, such as electricity, water, food, and other utilities, through your salary account. To streamline the process, ensure that subscriptions and all other bills are on automatic payment to avoid missing due dates and incurring extra charges. To control expenditure, it is advisable to analyse the salary account statements periodically to identify the trends and make the necessary changes.
For your savings account, set up a part of your salary to be transferred on a monthly basis, this will help you save before you spend. To ensure that you earn good interest on your money, look for savings accounts that offer good interest rates, especially if you are using zero balance savings accounts. Suggested to be used for saving for important things in the future such as travel, investment, or an emergency fund to save money without spending on daily expenses.
Conclusion
Some of the considerations to make when choosing a savings account include the interest rate, the minimum balance that you have to maintain and whether it is easy to access the account online. Search for accounts that have a better interest rate so that your money can grow faster. For instance, Kotak811 offers a zero balance savings account with attractive interest rates that are easy to avail along with digital banking services. It is a great choice for those looking for simplicity and savings combined.
