In my book Build a Budget that Works, I suggest having different accounts or funds set up for certain categories, like Medical, Auto, Clothing, etc. 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 the most crucial to 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!) or even through a Mutual Fund (it’ll earn more in interest). 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 the Beginner’s Guide to Budgeting.
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 and I recommend all parents have a savings account designated for each child. Contributing to this account is relatively easy, use the birthday and holiday money they receive from relatives to contribute alongside your contribution. The money will grow more rapidly and your children will learn the importance of saving money.
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 an almost 30 year old, 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 in 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 a medical savings account, the choice is yours.
Related Post: How to Save Up Cash You Won’t Spend
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.
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 (you will want to take advantage 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. Once you reach a $1,000 in that account, you can then start funding the other accounts.
For more on starting retirement planning, head here to read a post written by my CFP (Certified Financial Planner) that has been a tremendous blessing to our family!
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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