Many years ago, in a previously published workbook of mine, I suggested having different accounts or funds set up for certain categories, like Medical, Auto, Clothing, Christmas, etc (also known as “Fund Budgeting”). Having separate accounts for designated areas of spending is an easy way to keep track of and to remain in control of your money. There are six savings accounts that I believe are important to most families in order to protect them from catastrophe.
1. Emergency Savings Fund
Yes, I will keep beating this dead horse until every last one of you has an emergency fund set up. The purpose of the emergency is to keep you and your family afloat should something go horribly wrong, like a sudden loss of income. You need this account, end of story.
If you need a place to fund your emergency fund, I recommend an online bank like Ally or CIT (CIT has the BEST APY that I’ve seen in a loooong time!). Having it out-of-sight, out-of-mind will help to keep you from being tempted to spend the money.
Don’t know how you’re going to find money to save in an emergency fund? You’ll need to first budget and if you’ve never created a budget before, head here for a quick tutorial on Instagram.
2. Slush Fund
This is what we call our regular savings account in our home, our slush fund. We apply extra money from our budget here every month in order to cover any budgeting mistakes. This is our first line of defense in order to keep us from tapping into our emergency fund. If our dishwasher broke, we would take money from this account, if my husband lost his job, we would take money from our emergency fund.
3. Children’s Savings Account
Parents, this is a blessing to your children. This account isn’t meant to take priority over saving for your own retirement. This account is meant to only bless your children when they are older. My family calls this our kids’ “Life Accounts” since these accounts are saving specifically for college.
Growing up, the rule in my mom’s home was that when we received cash for our birthday or Christmas, we could keep it but any checks had to go into our savings account. Believe it or not, as a 35-year-old adult, I still keep this rule for myself. You can decide how you want to contribute to your children’s savings account but make sure that you actively teach them how to save and most importantly why you are saving.
4. Medical Savings Account
As I mentioned at the beginning of this post, you should have a medical fund of some sort. This account should hold enough money to cover your deductible, prescription costs, and copays. You can set up a Health Savings Account through your insurance, bank, or even your work, or you can set up a regular savings account to use as medical savings account if you’re like us, and do not qualify for an HSA or FSA. (We don’t have regular health insurance – this post explains what we currently use).
5. Gift Fund
This one does not necessarily have to be a savings account, you could just keep it as cash in an envelope if you prefer. If you want to have a debt-free Christmas or not have to put your child’s birthday party on credit, save money throughout the year to afford gifts for special occasions. The amount you designate to this is entirely up to you and your gift buying habits. However, I strongly suggest that you set up some form of a sinking fund for Christmas or other kid-related expenses. See the full explanation of sinking funds here.
6. Retirement
Yes, you in your 20s need a retirement account. If you do not have a retirement account set up, first ask your employer if they offer a 401(k) and if they do, if they match any contributions, a.k.a. a “match” (you will want to take advantage of this if they offer it). If your employer does not offer a 401(K), look into setting up a Roth IRA through your bank or another institution. Bankrate.com is a great place to look when comparing interest rates for retirement accounts.
These are definitely not all of the types of savings account you could set up, but it is a great starting point. If you are feeling a little overwhelmed by this list because you do not have any savings of any kind, do not panic.
Start with the emergency fund as that is the most critical account. Set up your Starter Emergency Fund, and once you’ve reached your starter goal, move on then to slowing funding these other accounts. This is not a race – slow and steady are what matters when it comes to achieving financial goals.
Protect yourself and your family from the unknown by having designated savings accounts set up for certain life events. You will thank yourself later.
What accounts would you add to this list?
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We have savings accounts for all our big irregular expenses, too. (Shout out to Capital One for making it so easy.) Our life insurance is paid bi-annually, so I contribute to the account monthly, then pull it out when the bill comes due. Same with our oil – it’s paid on an as needed basis, but it’s a large expense I’d rather not have to try to figure out when it’s due (and the dog needs surgery and, oh yeah, it’s Christmas). We also have designated savings accounts for furniture, home improvements, and our next car (we pay cash).
That said, all of these are certainly optional and really only work once you’ve got the 6 biggies above covered.
I love Capital One too! 🙂 Love how you make your accounts work and designated “car buying fund” is on our “need to create” list! Thank you for the inspiration!
I am visiting from the Frugal Friday Link Up Party. I need to open a 401(k)…I dread the though of getting old…but I am not getting any younger, that’s for sure.. Great post, Thanks for sharing.
When I worked in banking, I knew many people who did this. Grandparents would open up a savings account for each grandchild, for each purpose, etc. One grandparent had 13 grandkids and another 5 accounts for various things like taxes, vacation, emergency, etc.
What about one for paying off loans/debt? As a student, I don’t have to pay it yet, but I set up a savings account at a separate bank so I can start preparing to pay these loans off. Sadly I’m not making enough to put anything in it right now, but at least it’s set up.
CJ, that is an awesome idea! I think that would be a great idea for students anticipating paying on their loans!
I love the idea of an account for gifts or even the envelope idea. Gift buying can get so overwhelming when a birthday is coming up or 2 to 3 are in the same month!!! Great article 🙂
Yes! It is so challenging especially if the birthdays coincide with a holiday!
I loved the end when you said ‘…don’t panic…” lol that’s what I was doing the whole time as a read because I literally have nothing saved!
I have an account just for semi-annual and annual expenses. I also put money in there for quarterly expenses. That way, hen the bills come due, the money is there. or some reason, my husband doesn’t understand this concept and it is an monthly battle but I don’t give in.
I am just getting on top of all this stuff, I now have an account for next Christmas and our emergency fund account. I need to add a slush fund account and also a car account.
A follower of mine on Instagram said she puts any leftover money from her gas/petrol budget into her car account as well as a regular deposit to cover servicing, tyres, rego and future cars. this is my next to do.
great article.
That’s an awesome idea Hayley! I’ll have to add that to my budget – thank you! 🙂
We have an emergency fund and totally agree with how important it is! We started with the goal of having 3 months of my husband’s monthly income, then moved up to 6 and now are working toward having the funds to keep our family going if my husband were to lose his job for 1 year! We also have an Auto account in which we keep the deductible and continually contribute a certain amount to it each paycheck. By the time we are ready for a new car, there shouldn’t be a lot of concern as to where the money is going to come from 🙂 We also have a Medical savings account that has our minimum deductible for our family so that if something very serious were to happen that year, we could pay the entire deductible with no worries.
Thank you so much for this article! I thought I was crazy for opening up so many accounts (a few online accounts with no debit card or checkbook, the idea is to save right?) I knew I had been doing the right thing because I have Direct Deposit and I forget that I have several accounts at different places, therefore I don’t spend. If I have to have it, it will take 3 plus days to transfer into my primary bank account, so I really have to think about it. Again, thank you!
We have $500 for each person in the family as “emergency”. We have auto insurance deductables saved for each vehicle. We are working on saving for a family laptop (we’ve put the kids in charge of keeping us on track with that one), home down payment, and school for my hubby (tuition & books are saved up in advance of registering for the next semester). Others we want to start… Veterinary ($2000/pet), car repair, appliance/home repair.
I love this post. It’s stressful to think about saving, but absolutely neccesary.
Amazing Ideas ! Especially the “Gift Fund” 🙂 Love the Idea. Thanks for great article.