5 savings accounts everyone should have
Saving money for the future is important. In fact, it's a good idea to have not just one savings account but several different types of accounts.
Opening multiple savings accounts can help you to identify different financial goals and make sure you're on track to achieving them. You can have accounts for both short-term and long-term goals. And, by saving for many types of purchases, you can hopefully avoid debt.
The accounts you should have depend on your personal situation. But there are five types of savings that almost everyone should put money into. Here's what they are.
1. Emergency fund
An emergency fund is the first and most important type of savings account you should have. Emergency funds protect you from surprise expenses, job losses, or other disasters that you need money to handle.
Your emergency fund should have enough money in it to cover three to six months of living expenses, but it's OK if you have to slowly work up to that amount. The important thing is to prioritize building a rainy day fund and to not touch that money unless a true emergency arises.
2. Car purchase or repair fund
If you own a vehicle, it's inevitable that you'll eventually need to repair it. You don't want to end up borrowing money or going without your vehicle because you don't have the cash to make necessary fixes. So save up a fund for maintenance and repairs.
Your car also won't last forever, although you ideally should drive it as long as possible. While you can get an auto loan to fund the purchase of a vehicle, doing so only makes the car more expensive and gives you an ongoing monthly obligation you have to fulfill. Instead, aim to save money in a car fund so you can buy your vehicles with cash.
3. Home or property repair fund
If you own a house, you're looking at a 100% chance that repairs and maintenance will be necessary. Some of those fixes can be very expensive, costing thousands or even tens of thousands of dollars.
Borrowing to maintain your home, or deferring maintenance because you don't have the money, can damage your long-term financial situation. Avoid doing either by creating a home repair fund.
Even if you're a renter, you still need a repair fund. Your landlord will probably handle most fixes, so you won't need to save as much as a homeowner would need to. Still, you may have personal property that you need to repair or replace that your landlord won't cover, such as a television that breaks or a vacuum cleaner that stops working.
If you're a renter who wants to become a homeowner some day, your home fund can also be where you save for a future down payment.
4. Vacation fund
Most people enjoy taking vacations once in a while. To make sure you can afford to go on these trips, open a dedicated savings account to fund vacation expenses. That way, you won't have to worry about borrowing to pay for flights, hotels, or activities when you're away.
5. Big purchase fund
Finally, you'll probably need to purchase things in your life that you can't afford to pay for with one paycheck. You should have a savings account set aside for these items so you don't have to finance them with a loan or put them on a credit card.
If you save up for big purchases instead of borrowing, you can skip paying interest -- and maintain more flexibility in your monthly budget since you won't have a bunch of payments to make.
By saving for each of these five expense categories, you can be ready for both routine and unexpected costs -- and you won't have to worry about debt because you'll have the funds you need to cover most things you want to buy.
Ready to get started? Visit FirstMidwest.com/savings to learn more about your savings options.