According to a Barclays survey, nearly 75% of Brits overestimate their bank balance, with the majority thinking they are around £70 better off than they really are. One of the biggest reasons for this is the difficulty they have keeping on top of their income and outgoings.
While there are several things that can make it harder to keep track, having more than one bank account is one of the biggest culprits.
Separate is simpler?
Many people choose to have multiple accounts to improve their money management abilities, allowing them to ‘ring fence' certain aspects of their finances. This can be very useful if you're doing freelance or contract work, or have your own small business, and want a quick and easy way to keep business expenses separate. Likewise, if you're married or cohabiting, having a joint account for specific household expenses can be a great idea.
However, once in place, it's important to keep on top of all your accounts. According to the latest research, 26% of people don't read their bills properly, and 6% forget to cancel direct debits. This can be a problem with one account, but with multiple accounts your losses can start to add up fast.
As well as the cost of complacency, there are actual banking charges to factor in. Certain current and business accounts charge a monthly fee for their usage, while others require minimum deposits each month. Add in the risk of ‘unplanned overdraft fees' that can occur if you exceed your overdraft, and there's a big risk of overspending.
In addition to up-front fees, it's worth checking whether you are missing out on higher savings rates by distributing smaller lump sums across several accounts. If one provider has a particularly high rate, it may be worth consolidating all of your savings accounts into one place in order to take advantage.
Clearing the hurdles
If you're guilty of overestimating your spending thanks to multiple bank accounts, it's important to clear the hurdles and get a clear view of your finances as soon as possible. It may be that your second account is valuable, but just needs more attention, or it could be that it's a waste of both time and money. Just make sure you're clear about the pros and cons before you make a decision.
The next stage is setting regular financial goals. Working towards an aim, whether it's saving for a house deposit or clearing a fixed amount of debt, will give a sense of perspective and an achievable total to work to.
Lastly, it's important to know the objective facts about your income and outgoings. To do this, you can either track the amounts yourself by building a complicated spreadsheet, or use simple online tools like our free Money Dashboard software, which automatically tags transactions across your credit, current and savings accounts, all in one place.
Posted by Marc Murphy, Marketing Manager at Money Dashboard.