Sub-accounts: today’s digital, porcelain-free piggy banks

Most kids in the US and other English-speaking countries remember the satisfying clink of dropping coins into a piggy bank, or other such savings companion. The slim slot at the top is perfectly designed to accept coins, but make it impossible to withdraw them. It’s an early lesson in how to save money—and a memorable one. Piggy banks encourage saving towards a goal and make it more difficult to splurge that money on a whim.

The concept of a piggy bank is actually an ancient one—people first began saving money in clay pots thousands of years ago. Throughout history, thrift and self-restraint have generally been considered virtues that will bring future wealth. All of these concepts tie into saving. Take for example the protagonist in George Samuel Clason’s The Richest Man in Babylon—a classic that teaches personal finance in the form of parables. The first and most important lesson is that the man found wealth by paying himself first. That is, he put money away into long-term funds.

The mechanics of savings haven’t changed all that much since the days of clay pot piggy banks. Sub-accounts are just a modern update on this ancient tradition. Unsurprisingly, it remains one of the most effective ways to save. Here’s a quick intro into how Sub-accounts work, how they help you stay flexible with your planning, and how they incentivize you to set savings goals and stick to them.

Sub-accounts are basically smaller accounts that sit under your main bank account. Typically, they work like an extra compartment in a filing cabinet. They hold money the way you’d break a book up into chapters, or how a bento box separates different dishes of a meal.

Rather than clumping together all your expenses in your current or checking account—where you make all your payments—you can leave a certain amount of money untouched.

The best sub-accounts will have no fees and no minimum, both of which can eat up your savings or keep you from even getting started. The best way to run a marathon is a step at a time, and not in giant leaps. Saving is the same way.

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Where sub-accounts really shine are their ease of use and security. Many banks in the US let you make several sub-accounts under your main account and transfer money back and forth.

This means your money is still accessible in case you need to dip into it for an emergency.

It also makes it easier to put money there in the first place. Most banks will make them a part of your online banking and classify them as savings accounts. Here you can immediately set up another account and start putting money in it.

You most likely have a rough idea of how much you’d like to save toward a new house or a trip around the world. But actually formalizing this makes a huge difference.

Say you are trying to save for a down payment on a house. So you set up a sub-account and give it the name “Down payment on my dream house.” The next day a new iPhone comes out. You wonder if you can afford it, so you log in to your online bank and skim your checking account.

You don’t have enough. But there is enough money in your “down payment” account. Suddenly you can feel a shift in your perspective. That money isn’t meant for a new iPhone—you’re less likely to borrow money away from your dream goal when you’re clearly reminded of it.

By organizing your finances around a set of achievable goals, you can feel like you’re going somewhere. This also creates a little friction any time you’re tempted to deviate from those goals.

There are a lot of formulas you could use to organize your finances, but ideally, you’ll find something that works for you. You know best how much you want to spend on discretionary stuff like eating out or going to the movies.

So stay flexible. Find a tool that helps you break up your finances in a way you like. Before you know it, you’ll have a better handle on what you want and how to get there.

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