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How to manage multiple "accounts" (emergency fund, maintenance, etc.) in a co-op

Last update: June 2011

Let's say that your budget calls for putting 1% of rent into your Maintenance Fund, and 1.5% of rent into an Emergency Savings account.  Let's further say that you have only one bank account: a checking account.  When you look at your bank balance, you see only a single number, like $3,474.  How can you tell how much of that is what you saved for maintenance, and how much is what you put way for emergency savings?

There are two ways to handle this:  Use multiple bank accounts, or keep track of "virtual" accounts.  Let's look at each in detail.

Using multiple bank accounts

Using multiple bank accounts is by far the easiest solution, but unless you can find a bank that offers free accounts, you'll have to pay for the privilege.  Still, the cost could be worth it.  Two accounts that charge $10/mo. in a house with 10 members means that every member pays only $2/mo. more in rent so you can have your accounts.  If you've ever been in a co-op whose finances were totally screwed up, $2/mo. per member might seem like a bargain.

If you think your bank offers free accounts, remember, your co-op is a business, so you'll need a business account.  And those are rarely free.

Anyway, here's how it works.  Instead of having just a single checking account, you'd actually have three bank accounts:
  1. Checking Account
  2. Savings Account for Maintenance
  3. Savings Account for your Emergency Fund
When you collect your rent, you make deposits into these accounts as follows:
  1. 97.5% of rent into the Checking Account
  2. 1% of rent into the Savings Account for Maintenance
  3. 1.5% of rent into the Savings Account for your Emergency Fund
Then, when you need to spend from your Maintenance or Emergency Fund, you transfer the money from that account to your checking account, and then write a check.  Most banks these days let you transfer money between your accounts online.

If you prefer, you could have all three accounts be checking accounts.  This saves you the step of having to transfer the money to your checking account before you can spend it.  The downsides are that you then have three different checkbooks to keep track of, and that your bank is more likely to charge a fee for a checking account than a savings account.

Using a single account

If you can't get free accounts and you're allergic to paying the bank fees, you can keep all the money in a single account.  You just have to be scrupulous about keeping track of everything.

What you'll do is to keep a spreadsheet of all your transactions.  Here's one way to do it:

You have only one physical account, the checking account, which I've shaded in yellow.  The other accounts are "virtual" accounts.  They exist only in your spreadsheet.

Every time money goes in or out of your checking account, you'll definitely make an entry for that account (the yellow part).  You'll also make an entry in at least one of the other columns too, for the virtual account.  For example, on 6/3 you made a deposit for rent.  You make an entry into all four accounts:
  1. The whole $5000 of collected rent into the checking account (your physical account)
  2. 97.5% of the rent ($4875) into the Spending Money (virtual account)
  3. 1.5% of the rent ($75) into your Emergency Fund (virtual account)
  4. 1.0% of the rent ($50) into your Maintenance Fund (virtual account)
When you spend money you'll likely make entries into just two accounts.  You always make an entry into the checking account, regardless of what kind of transaction it is.  And you'll also make an entry into the corresponding virtual account.  For example, on 6/4 you paid your mortgage.  So you make entries in the Checking Account and in Spending Money.

As you can see, you've really got to be on the ball to make this work.  If you neglect to make your entries, your accounts will be a mess.  Also, notice that it's possible for errors to creep in without your noticing them.  For example, a math error could mean that your Emergency Fund and Maintenance Fund balances are overstated, so that you think you have a lot more money in those accounts than you really do.  Therefore, good practice is to reconcile your accounts every month.  (The Checking balance should equal the total of all the other account balances.)

A variation of keeping everything in a single account is to keep things in two accounts: a checking account and a savings account.  In that case your Savings account would consist of two virtual accounts: Emergency Fund and Maintenance Fund.  You wouldn't need a "Spending Money" account, since your "Spending Money" is simply your checking account.

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