Want to know the four saving accounts every family should have?
I’m a firm believer that every family should have multiple savings accounts. How many times have you saved for a specific item and then an unexpected need came up, causing you to use that savings for something else?
Having multiple savings accounts helps you to categorize your savings, naming a specific purpose for all those hard-earned dollars. In my humble opinion, here are four savings accounts that will help every family reach their own financial goals.
1 – Short-term Savings
There was a time in my life where the smallest unexpected expense just about did us in on any given month. And I know many families can relate.
When the engine blows or the tires need to be replaced, who has thousands of dollars just sitting in their checking account waiting to be used? I know I don’t.
We decided from the very beginning of our marriage to always have a little bit set aside in a savings account for just such a purpose. You can read all about our meager savings account, what we called our Beginner Emergency Fund, in this post right here.
Nowadays, we call this our short-term savings and it is just that. A savings account that is connected to our checking account so we can transfer funds anytime something unexpected comes up. Like those dang tire replacements.
2 – Long-term Savings
The second savings account we have is our long-term savings, or our Emergency Fund for all those Dave Ramsey fans out there. After we paid off over $80,000 of debt, we slowly built up about six months’ worth of bare-bone expenses. We keep this in an account separate from our short-term savings. Hopefully, it is something we will never touch. But we want to make sure we haven’t tapped into it if the day comes where we really need it.
The purpose of a long-term savings account is to accumulate enough money to help pay your bills in case you are unable to work. Be it a terrible car accident, health problems, job loss, or layoff, your Emergency Fund will help pay your bills until you are able to secure work again.
Figure out how much your family should save, and start taking steps to build that savings up. You can check out my post How Much is Enough for You to Save if you are wondering what would would be perfect for you family.
In our family, this is an untouchable account. We do not withdraw from this. Ever. Any true emergencies usually come out of our short term savings account. But THIS is a sacred account that is guarded at all costs until the unthinkable happens. Then we will be ready to tap into it.
We are still adding to this account every month until we reach our goal number. You can read all about the progress we have already made in our July Finance Goal Update post right here.
3 – Vacation Fund
It should come as no surprise that once we paid off debt, we swore to ourselves that we would never use credit again. We do have a mortgage, but as far as anything else we are committed to paying cash. Monthly payments are not for us.
In this debt-free life, we have learned that there are many things we can do without.
Vacations, however, are not one of them. Very early on in our marriage, we started saving a certain amount each month in a third savings account. It is an automatic transfer that comes out the first of every month. Out of sight, out of mind.
We don’t even miss the money since we don’t really see it. And every summer, when we sit down to plan our vacation, we almost always have enough money to cover it! The trick is to make your savings automatic.
Now I will say, most of our vacations involve going to visit friends or family. Or we might head to the beach and get a big house, splitting it with three or four other families. We find many ways to cut back on costs while we travel.
Don’t get down on yourself if you don’t have thousands of dollars to splurge on vacay every year. You don’t have to go all out every single year. The kids will be fine. I promise.
But if vacationing is important to your family, then by all means, find ways to save strategically for it throughout the year. A little bit every month goes a long way. Before you know it, you will have way more than you expected to have come vacation time.
Take it from me: spending cash for a trip before you leave, is so much sweeter than paying off a credit card months after you return. We pay everything up front, enjoy our week, and come home to no credit card statement. And no regrets.
4 – Upcoming Purchase Fund
This one will look different for every family, so hang with me for a sec. When you have big ticket items that need to be purchased, it’s important to save for them. Especially if a debt-free lifestyle is something that is important for you.
During the school year, I teach and tutor part-time. This is money that we use for bills. It’s not just extra money. We need it to live off of.
Very early in the school year, we realized that these funds would dry up come summertime, and open up again come September. So we needed to make a plan for our lower income months.
We decided to have a “summer bills fund.” We funneled away a little bit of extra money each month so that when June came, we had enough to live comfortably. I guess “comfortably” looks different to everyone, so let me clarify. Knowing we had three really tight months, we cut back on most extra expenses, were very careful with our money, and used this little cushion when needed. Always try to live beneath your means.
Honestly, we have still had a great summer! We took a trip to my home state, California, to visit family for a cousin’s wedding. Which came out of our vacation fund. We didn’t even use our regular money to pay for anything.
As soon as our Emergency Fund is fully funded, we will be saving for a few big ticket items that we have gone without. My husband is literally begging for a riding lawn mower, and it is definitely time for a new mattress.
We also know we will be needing a new car in the next five years or so which is something else we will be saving for. What works best for us is picking one big thing, saving for it, buying it, then picking another big thing. When we focus our efforts on one item, we can funnel any extra money towards that one thing. It seems like we reach our goals faster if we are more concentrated in our efforts that way.
Maybe that won’t work for you. Maybe you want to split your efforts between two equally important things. Go for it! It’s your journey! At the end of the day, you have to find whatever works best for YOU.
What is the thing that will help you sleep more soundly at night? Do that!
Having these savings accounts helps me sleep better at night for sure. If our AC goes out, our short-term savings will have our backs. If my husband’s company downsizes and he loses his job, we have long-term savings that will pay all of our bills for six months. This will give him time to find a job he will enjoy.
We save a little bit every month for a vacation so we can get out of town with our family every once in awhile just to unwind and come back refreshed. And we save for larger purchases, only buying them when we have enough to cover the entire cost. A credit card means more money will be spent on interest, and it will usually take months or years to pay off.
While we can’t plan for everything, we can do our darndest to the best of our abilities. Saving for the future and saving for emergencies has brought so much peace to my family. What could have been some really stressful situations became minor inconveniences because we were prepared.
What types of things do you save for? Do you have multiple accounts as well? I would love to hear your input!