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Everyone knows how hard it can be to save money. It seems like no matter what you do, expenses keep popping up here and there and before you know it, you’ve run through all your income for the month. If this is a struggle for you, consider the sub-savings account budget that automates your savings in a hands-off approach.

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What Is a Sub-Savings Account Budget?

A sub-savings account budget is a great option for those wanting to learn how to spend less money and start saving towards short and long term goals. This budget is a largely passive personal finance tool that can be easily automated to help you put money into multiple sub-savings accounts based on your needs. It works by prioritizing savings and setting aside money for your goals first, and then you use whatever is left over each month for your essential and discretionary expenses.

🎯 A sub-savings account budget automatically directs funds into targeted accounts so it’s easier to reach specific financial goals.

Who Is a Sub-Savings Account Budget Best For?

photo of a woman using the sub-savings account budgeting method

This type of budget is great for those who have specific goals they’re trying to accomplish and want a hands-off approach they don’t have to micromanage. It’s also helpful for those who aren’t great with budgeting and may need a little extra help making sure their money is going to the right place. And, although this is a great tool for individuals, it can also help business owners save for their goals too.

💡 Sub-savings account budgeting is particularly useful for individuals with distinct saving goals who prefer minimal daily management of their finances.

Advantages of a Sub-Savings Account Budget

  • Great for separating funds into clear categories for spending and saving.
  • By having sub-accounts, you won’t be tempted to dip into one fund to pay for something else.
  • Is a good visual reminder for those who struggle saving money.

Disadvantages of a Sub-Savings Account Budget

  • If you don’t have your income directly deposited, it can be harder to set up and implement this plan.
  • For those without a predictable income, it can be difficult to assign withdrawal amounts you’ll be able to maintain each month.

The difference between using a sub-savings account budget and simply saving money is that the former focuses on specific purchases you plan on making in the future instead of just lumping all your savings into one pile. Specific goals could be saving for a vacation, a new car, wedding, a down payment on a home, or an emergency fund.

This method also relies on setting up automated transfers from your checking account each month. This forces you to adjust your spending habits since the money is taken out at the beginning of each month (or whenever you get paid regularly).

🔎 Step 1: Review your average income and expenses

Since you’re setting aside a specific amount of money each month, you need a clear idea of what you’re able to put towards savings, while also ensuring you leave enough for your essential needs. Since you’re prioritizing saving money, you should allocate as much as you comfortably can while knowing you’ll have less for discretionary spending.

💻 Step 2: Set up you sub-savings accounts

Starting this kind of budget is easy since you only need a savings account to begin with and most people already have one. You’ll then have to set up individual sub-savings accounts for each of your specific goals, and each should serve a distinct purpose and cover both your short and long-term goals.

💵 Step 3: Assign a dollar amount to each account

Now you just need to decide how much you want to add to each account per month and set up an automatic transfer. It’s better to start with a conservative estimate and add more if you’re able.

⚙️ Step 4: Adjust as needed

You will likely need to adjust this process during the first few months while you figure out what’s sustainable. You’ll also need to make changes once you fully fund a goal and need to decide what the money should go to instead.

Sub-Savings Account Budget Example

photo of a man using the sub-savings-account budget to save money

Let’s say you have a take-home monthly income of $3,500 and decide you can comfortably set aside $500 each month for savings. This leaves you with $3,000 for rent, utilities, insurance, groceries, and any non-essential expenses like entertainment or dining out.

If you’ve outlined savings goals and set up sub-savings accounts with automatic transfers, your budget could look like this:

CategoryMonthly Allocation
Total Income$3,500
Savings – Total$500
– New HVAC System$200
– Vacation to Europe$200
– Emergency Fund$100
Remaining for Expenses$3,000

Each month, $500 goes into your savings, split across three sub-accounts. The rest of your income covers all other living and discretionary expenses.

How Does the Sub-Savings Account Budget Compare?

Type of Personal BudgetDescription
Traditional BudgetSubtracts monthly expenses from income, ideal for beginners.
50/30/20 BudgetDivides income into 50% for needs, 30% for wants, and 20% for savings/debt.
Zero-Based BudgetAllocates every dollar of income to specific categories until it equals zero.
Goal-Based BudgetFocuses on specific financial goals with some flexibility.
Spending Cap BudgetSets a maximum cap on monthly spending to encourage savings.
Envelope System BudgetUses physical cash in envelopes for different spending categories.
Pay Yourself First BudgetPrioritizes savings by setting aside money for savings first.
Sub-Savings Accounts BudgetCreates detailed savings goals within a primary savings account.
Anti-Budget BudgetA relaxed approach: save first, pay bills, and spend the rest freely.

Does a Sub-Savings Account Budget Really Work?

There are many types of personal budgets based on your individual needs, but if saving money towards specific goals is a high priority for you, then the sub-savings account method is very effective. By designating a set amount of money each month that’s automatically taken out of your checking account, your savings categories will keep growing with little effort on your end.

What if my current bank doesn’t offer sub-savings accounts?

If your bank doesn’t allow sub-savings accounts, you can try financial institutions like Capital One 360, Wealthfront, or Ally which all have good options. For example, Ally has savings “buckets” that are all housed under a single savings account that you can then assign percentages to (for instance, 50% towards vacations, 35% toward a car, and 15% toward an emergency fund).

If you want to keep your money in your current bank, you may be able to simply open multiple savings accounts, though you’d have to manage on your own how much money is deposited into each one and your bank may charge for each new account you add.

How many sub-savings accounts should I have?

This is really up to you and depends on your goals. Most people will want to limit their sub-accounts to three or four so you can really focus where your money is going. Plus, once you fulfill one goal (say saving up enough to purchase a new car), you can then rename that sub-account for your new goal (for instance a Hawaiian vacation) and start diverting the money that was going to the car over to your vacation fund.

Should I include retirement savings in these accounts?

No. Any money that’s used for retirement or investment accounts like a 401k or an IRA should be separately managed. Some high-yield savings accounts (HYSA) can offer an APY of around 4%, but this is still far less than the 7% to 10% that an IRA would be expected to yield per year.