Why You Need Multiple Savings Accounts
Using more than one savings account helps you stay organized and strategic with your money
How many savings accounts to you have? If it’s just one or two, you’re probably not as organized with your finances as you could be. Because having multiple savings accounts can make you a bona fide financial wizard.
Saving money is one of the most fundamental things you should do in your journey to financial freedom. You need to save for emergencies, new vehicles, travel, annual expenses and a whole host of other things. And the more your organize your savings, the more success you’ll have.
When you first started banking, you probably opened a savings account. That single account served you fine early on when you enjoyed a simple financial life. But now that you’re an adult with a more complex set of responsibilities, having just one savings account probably isn’t enough to get the job done.Having multiple savings accounts can make you a bona fide financial wizard. tweet this!
If you try to save for all long-term expenses in one single account, you might make mistakes and accidentally spend some of that money.
To avoid this problem, use multiple savings accounts to save for different expenses. This allows you to easily monitor exactly how much money you’ve saved for any given expense. Keeping your money in multiple accounts also protects you from spending too much money in one area and shortchanging yourself in another.
To get really organized, I recommend having at least five different savings accounts. (These can all be sub-accounts at your main bank if you’d like). Each account has its own purpose and its own name.
1) Emergency Savings
Your emergency fund is your most important savings account. Sooner or later, bad things happen to everyone. And many of those things cost a lot of money.
Emergency savings gives you a cushion to fall back on when things get tough. And it gives you some cash reserves to cover the cost of disasters.Your emergency fund is your most important savings account. Sooner or later, bad things happen to everyone. tweet this!
Most experts suggest having 3-6 months worth of expenses stored up in an emergency account. Once you get there, set this account aside and don’t touch it unless you have a true emergency that you can’t pay for with your regular budget.
2) Set-Aside Savings
A lot of expenses come up once or twice a year, and it can be difficult to account for these in a monthly budget. But you can solve this problem by using a set-aside savings account that automatically draws some money out of your checking account every month.
You don’t use this account to store money for the long term or to accrue a lot of interest. Instead, it’s more of a temporary holding account. Set up an automatic transfer out of your checking account each month that puts money into this account. Then take money out of the account when you need to.
I use a set-aside account to save for car and home maintenance, auto registration, taxes, membership fees and other semi-regular expenses. A set-aside account ensures I always have money for these things when I need them.
3) Auto Savings
If you drive a car, you’ll need to replace it eventually. Your car wracks up a little bit of wear and tear every time you drive it. And sooner or later, it will quit running.
Since borrowing money to buy a car is a bum deal, you need to be constantly saving money to purchase your next vehicle. Even if you just bought a new car, you should start saving for your next one.Even if you just bought a new car, you should start saving for your next one. tweet this!
To do this, set up a special savings account for your next car purchase and fund it monthly with an automatic transfer from your checking account. When the time come to replace your current vehicle, you’ll have plenty of money available for the next one.
4) Travel Savings
We all want to — or have to — travel from time to time. You may want to take your family on a nice vacation, or you may need to travel a few times a year to visit family. Maybe your kids have school trips coming up in the near future.
Whatever it is that takes you out on the road, travel is expensive. The best way to prepare for those expenses is to save for them ahead of time. Having a separate savings account for travel will help you gauge exactly how much you can afford to spend on your upcoming trips. And you can plan plan how much to take from your monthly budget to pay for the trips you’d like to take in the future.
5) Special Savings
In addition to these first four categories, you probably have other special things going on in life that you’re saving for. Maybe you’re saving up to make home improvements or buy a new house. If you have a new baby coming, you’ll need several thousand dollars to pay for medical expenses. Or perhaps you’re just trying to save some cash to buy a fancy new gadget.Saving separately for special purchases will help you see exactly how far you have to go until you meet your goals. tweet this!
These special items should have savings accounts of their own. Saving separately for these special purchases will help you see exactly how far you have to go until you meet your savings goals. And it will keep you from accidentally using money from other savings categories to pay for those special things.
Using multiple savings accounts makes it much easier to organize your financial planning. It’s smart to have at least five savings accounts. My family has seven. How about you?
Getting Smarter Together
Having multiple savings accounts is just one way to get smarter in the way you manage your money. For more ideas like this, join me and a community of other people in our Facebook group, FINANCIAL FREEDOM.
Every day, we share practical articles, inspiring photos and personal stories to help make your financial life better.
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