We often are given the advice that we all need an emergency savings account to cover any major unexpected expenses. Financial experts suggest this is just one of many different savings accounts you need to build.
Why would people need more than just an emergency fund?
By design the emergency fund is for any major unexpected change in your financial situation and is really for when there is a problem. However, in our life we have so many other reasons to build savings for specific purposes.
What are some of the most important savings accounts to establish?
If you have a car then you should be building a maintenance fund because you will have repairs, adding to a health savings account to pay for deductibles and co-pays and finally building a saving account to have fun is also very important.
Are there any special savings accounts that people should build?
It is always good to save for the holidays and if you have any special occasions coming up that will require you to spend money, then saving in advance would be a good idea, this can be weddings, milestone birthdays or anniversaries are prime examples.
Should you build savings when you have significant debt?
If you have a lot of debt then it would be best to focus on just those savings that you know you will be using in the short term like the car fund or the health savings fund. Also working towards a small emergency fund is also prudent however beyond that it is better to focus on rapid debt reduction.
What is the best way to build these different savings?
First make many of these accounts part of your monthly budget which means you might need to cut back on other expenses so that you have the funds to save. Also, for any windfall of money from bonuses to tax returns, put most of those funds in these accounts. No one is ever upset about having savings when events happen.