How many checking and/or savings accounts do you have?
One of each perhaps? And maybe even one with little to no money in it? Yikes!
I would like to suggest something that may seem a bit outrageous, but I believe everyone has at least four things they should be saving for. And I am even going to go as far as to suggest that you open a separate savings account for each item. This practice of course is so that you can see exactly where you are at on your savings goals and to make sure you don’t dip into the funds you’ve saved so far. So what are the four things you should be saving for?
An Emergency Fund
This savings account is for all the oopsies, awh craps and son of a bi*** moments that may come up. Accidents, emergencies, unexpected expenses whatever you want to call them, they happen. And it is best to be prepared for them. Maybe you already have a savings account and you feel like you have plenty of money in it to handle whatever may arise. What if that “whatever” was being out of work for 3 months? This can happen no matter how secure you think your job is. That is why many personal finance experts (including my fav Dave Ramsey) recommended that you have 3-6 months worth of living expenses in your Emergency fund. Does that seem outrageous right now? That’s ok, just start by working towards $1,000. Some of you can transfer that money right now and feel at ease. Others may need to start by scrounging up every penny they can find in their budget this month. Whatever you need to do, start working on that first $1,000 fast.
A Travel Fund
Maybe you never go on vacation. Maybe you go on vacation every year and over spend. Maybe you just make frequent trips to the mountains on the weekends. I do both of those haha! Which is exactly why it is so handy to have a travel fund. I don’t put much towards it every month, but it has added up to enough in 7 short months to cover my plane ticket to Hawaii this summer and then some. When it comes time to book my flight I won’t even have to feel anxious about the expense. A travel fund allows you to save slowly for all of your adventures whether that is Hawaii, a weekend away at a National Park, visiting family or a fun road trip with your friends.
A Home Down Payment
If you aren’t a homeowner yet, you should be saving for that dreaded down payment. Put your money in a high yield savings account to earn more interest and work towards home ownership. Unless of course you are a gypsy. Or even if you are.. buy a rental property and earn money on that!
There are so many options to save for retirement, it is important to find which one works for you. If you have an employer matching 401k, contribute to that baby. If you don’t perhaps you should be considering an IRA or a Roth IRA. The main difference being that with an IRA you can invest money pretax and pay taxes on it when you withdraw the money during retirement. With a Roth IRA you contribute money you have already paid taxes on and you won’t have to pay taxes on them later when you withdraw the money. Keep in mind that there are $$$ penalties when you withdraw early from retirement accounts. Think of the money you invest in this account as off limits until retirement.
Do you have other major milestones you are saving or have previously saved for? I’d love to hear what they are and if you had any special strategies during your saving process. We love tips and tricks here, feel free to share in the comments below.
Til next time friends!