3 Savings Accounts Everyone Must Have
3 Important Savings Accounts
You must have been told that there is need for you to save. Of course, you need to save but you need to have specific goals. You should know why you are saving. That is, you should know what you plan to do with the money you are saving. If you are just saving money without having specific goals that you want to achieve with the money, you may realise that you will end up spending the money on anything that comes to mind per time. When you know why you save, it becomes easy for you to determine a specific amount of money you need to have in the savings account which will help you achieve your objective. For an example, if someone is saving towards buying a home, he will have a particular type of home he wants to buy in mind. He will decide on the location and the likely amount the property will cost him. Then, he will estimate the down payment and the closing costs he needs to pay. With this in mind, we can say that he has a specific goal he wants to achieve. He knows the target amount of savings he must have that will be sufficient for him to pay for the down payment and the possible amount he should set aside for the initial three to five monthly repayment amount.
So, when you are advised that you need to save or you plan to save on your own, it is very important you know what you are saving for. Individuals may have different reasons for saving. Some may want to save to buy home, car or appliances. To others, it may be that they plan to make improvement to their property or to go for vacation. But there are three savings accounts which I believe everyone should have. These will be discussed below.
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Emergency Savings Account: Emergency can happen any time. At times, it happens when you least expect. And in most cases, it will require immediate action which means that you may not be able to postpone it. In fact, that is why it is called an emergency. Examples of emergency situations are when you need to pay medical bills that is above your insurance coverage, repairs of your car or the need to make unplanned trip. At times, you may need to spend money on burial expenses. For this type of emergency situations, you need to have emergency savings account. It is from this account you will withdraw to pay for the emergency expenses. Emergency savings account can also serve as a cushion for your cash flow in case you suddenly lose your job. You will agree with me that there is no job security anywhere again. If you listen to news, you will hear how companies are down-sizing. With the trend of new technology, the same ways that new jobs are being created, it also results to job loss in some other sectors. How much should you have in your emergency savings account? It is suggested that you should have an amount that can take care at least your three month expenses. Once you have met that benchmark, you can increase it to cover six months expenses and later one year expenses. Any time you have cause to draw from your emergency savings account, you should ensure that you quickly replenish the account and bring it back to its original level. Emergency savings account provides you with unusual peace. The effect of this you may not be able to quantify.
Read Also: Why You Should Have Emergency Fund
Savings Account for major purchase: Apart from your emergency savings account, you still need to have another savings account where you can finance your major purchases. It is always advisable to separate this account from your emergency savings account. It is from this account you pay for such expenses like acquisition of appliances, major repairs and so on. One thing about these expenses is that they are not recurring. They are not part of your normal monthly expenses. When you have a savings account that is dedicated to financing your major purchases, you will not need to deep your hand into your emergency savings account any time you need to make such major purchase. Even if you don’t have sufficient amount in the account, it will reduce the amount of loans that you will need borrow.
A retirement savings accounts: How are you planning for your retirement? Do you know that a time is coming in the future that you will not be able to do all these running around that you are doing now? Even though you want to do it, your body system may no longer support it. If you work as an employee, you will get to a certain age that you will be asked to retire. That is why you need to have a retirement savings account. From this account, you will be able to meet your living expenses after you have retired from active work.