Savings accounts you need right now
Putting money aside into a savings account is necessary in order to reach your financial goals. However, lumping all your savings into one account is not the best strategy. Having multiple accounts—and specific purposes for each of those funds—allows you to target your savings and be more successful in reaching your goals.
There are many types of savings accounts to consider. However, if you’re just starting out, take it slow. Here are the three types of savings accounts that we recommend.
1. Emergency savings
An emergency savings account is one of the best ways to build financial security. This account is meant to bail you out of tight situations. It will help you avoid maxing out your credit card or taking out a loan to cover unexpected expenses.
The amount of money you keep in your emergency fund will vary based on your living expenses and the number of people living in your home. However, aim to have three to six months worth of expenses on hand.
Once you’ve reached your savings goal, avoid pulling from this savings account unless it’s an actual emergency. Examples of a good time to dip into your emergency fund could include:
- Losing your job
- Hours cut at work
- Health care emergency
- Unexpected car repairs
2. Short-term and mid-term savings
Short-term (achievable in under a year) and mid-term (achievable in one to five years) savings accounts are meant for building up money for major purchases or expenditures in the near future. That could be a vacation, holiday shopping, or purchasing a house. These types of account will fluctuate as you build, deplete, and then build up your savings again.
To keep your money organized and have a better handle on your savings goals, you may want to open multiple savings accounts. For instance, an account for vacations, one for buying a home, and another for miscellaneous items (like a new TV or surfboard).
3. Long-term savings
Your long-term savings account is where you would include your 401(k), IRA, and any other long-term investments. This type of savings account typically involves investing in the stock market, and may not be easily accessible.
Your contributions into this account should be automated; however, it’s a smart idea to assess growth and performance on an annual basis.
Long-term savings encompass all those major expenses you’ll have years down the line. The money you put in this account probably won’t be necessary for at least 10 years, if not longer. Great examples of long-term savings goals are your child’s college education and your retirement.