Just because you aren’t in debt doesn’t necessarily mean you’re great with your money. If you only have a single checking and savings account, you could be in for a financial disaster in the future and not even realize it until it’s too late. Just like business insurance protects your company from potential hardship, having several savings accounts can help you stay financially afloat and maintain your peace of mind. So just how many accounts do you need?
Life doesn’t always move to the same rhythm you do, and having an emergency savings account can help you during those times when life steps on your toes in the middle of a song. Your emergency savings should contain anywhere from three to six months of your regular expenses. You’ll need it in case you unexpectedly lose your job, need emergency housing or car repairs, or if there’s a natural disaster that displaces you and your family. It’s best to keep your emergency funds in a high-yield account so you can earn as much interest on it as possible.
You likely have a short-term goal that requires several years of saving. Maybe you’d like to buy a new car or house in the near future. A money market account, Certificate of Deposit or high-yield savings account are all examples of the perfect place to store your short-term savings money. To save up the right amount, figure out what you want to save for, how much it’s going to cost, how long you need to save up and how much money you can devote to saving every pay period. That way, you aren’t putting back too much or too little, which is essential for balancing your budget.
Even if your employer offers a 401(k) plan, it doesn’t hurt to save a little extra, especially considering the fact that there’s no telling if state and federal assistance will be available when you retire, or how much will be left if there is. Besides a 401(k), a Roth IRA or a traditional IRA will be your best bet. Know that you should do everything you can to not touch the money you have saved for retirement until you’re actually ready to retire, which could take a lot of self-control. To make it easier, you may want to set up your retirement account with a bank or company that’s different from your normal bank. Not being able to see that money when you check your regular account can trick you into thinking that you don’t have it, which can make it harder to spend it.
Even if you have insurance, you can easily go into debt should a major medical emergency befall you. Know that your medical emergency savings account is different from a Health Savings Account, which you may have if you have a high-deductible health insurance plan. Instead, this particular savings account is to help you pay for things like deductibles, copays and the like. Even if you’re in perfect health now, there’s no telling what may be coming down the road. Even if you don’t use the money you save in your medical emergencies account anytime soon, it’ll still be there when you’re ready to retire, and elderly individuals often have a number of medical and health issues. Rather than your regular savings or retirement, you can pay for medical care in your golden years with the money socked away in your medical emergencies account.
By tweaking your budget here and there and figuring out your lifestyle, you can be sure that you’ve got the right amount of money to keep yourself financially covered. If you don’t yet have these accounts, start with one and work your way out from there.