When it comes to the idea of savings, a lot of people tend to get it wrong. What they believe is that they simply need one “rainy day fund” and that’s that. However, this couldn’t be farther from the truth. The truth of the matter is people should generally have several savings accounts.
Let us break them down for you:
The emergency fund is the savings account that you tap into during emergencies—hence the name. It is something that you should religiously deposit into and do not touch. The only viable reason why it should be tapped into is in the face of sudden loss of income.
You’ll be thankful that you have this particular fund!
This is the sort of fund where extra money goes. It’s called a sinking fund because this is the fund that is commonly used when there is something that needs to be fixed. If there is anything that goes beyond the normal spending budget, this is the account that you tap into.
For example, let’s say that you’ve already allotted money to where they’re supposed to go but then your car starts to act up. You don’t tap into your emergency fund. Instead, you tap into your sinking fund.
You would be surprised at the sheer number of people that normally equate the emergency fund with the medical savings fund. When illness or medical emergencies strike, this is the fund that you use. What’s good about this fund is the fact that there are insurance firms which help you build this particular fund.
So you’re not reliant on the bank or your budget to keep making space for it.
Yes, as early as now you should save up for your retirement. This is the sort of savings account that you regularly deposit into and do not see until you are considering retirement. It’s up to you to determine what age that is going to be.
As much as possible, don’t rely on your kids to tide you through your autumn years.
What’s the use of having money when you’re not going to spend it, right? This is the fund that you utilize for all the things that you want to buy. Normally, you shouldn’t buy anything that this account cannot afford. This is a great way to make sure that you will always stay within budget.
Savings is a topic that should be taken seriously by everyone who ever handles money. A common mistake that is often done by a lot of people is that they believe that they can just keep on making money and put off starting a savings account. Do not make that mistake. If you have yet to start different savings accounts, you really should get to it.
In that light, which one are you going to start with?