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.
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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