You should have more than one type of savings account sitting in your financial portfolio. In fact, you should aspire to have four of these types of savings:
A Rainy Day Fund
A rainy day fund is a collection of savings for managing unplanned, urgent expenses like plumbing trouble, roof leaks and broken appliances. You can’t ignore these problems until your next paycheck arrives. You have to deal with them right away.
So, when you encounter one of these problems, you can pull savings from your rainy day fund to deal with the related expenses.
Without a rainy day fund, your options for handling these types of expenses can be limited. What can you do? If you don’t have enough savings, you could use your credit card or apply for an online loan to help you manage an urgent expense. Check to see whether you meet the qualifications for loans through CreditFresh to figure out whether you’re eligible to apply or not. If you are, you could send in your application for a loan right away. You just might get approved and get the funds that you need.
An Emergency Fund
An emergency fund is similar to a rainy-day fund — it’s just for bigger emergencies. An emergency fund is a collection of savings that’s meant to help you endure major life upheavals like job loss or illness. Many Americans had to depend on their emergency funds during the pandemic because their regular source of income shrank or completely disappeared.
Your emergency fund is meant for these times of crisis. It can supplement your usual income and cover the costs of your everyday essentials (bills, groceries, etc.).
So, how much should you save in your emergency fund? Ideally, you should save three to six months’ worth of your household income. If you want to save more, you can. You never know when you’ll need to use it.
A Retirement Fund
Even if your retirement is decades away at this point, you should still have some retirement savings in the works to be able to afford the leisure, medical and technology needs that you will require in retirement. The earlier that you get started on this goal, the more you’ll have stashed away for your golden years.
If that’s not enough motivation, you should look at the reality of what happens when you have no retirement savings in your old age. You will have some government programs to help you make ends meet, but it’s not enough to guarantee that you’ll have a comfortable lifestyle or a financially secure future. So, if you don’t have this fund yet, it’s time to start putting it together.
A College Savings Fund
If you have young children, you should start saving up for their post-secondary education. The goal is similar to your retirement savings — the earlier that you work on these savings, the more that you’ll accrue over time and the less panic you’ll have when you finally reach the deadline.
Start by opening up a basic savings account or a 529 plan (an investment account for education savings with tax benefits) and contributing every month. You’ll be glad that you did this by the time your kids are in high school and looking at colleges to apply to.
You can see why these savings accounts are essential for everyone. They can help you recover from the worst moments of your life and help you thrive in the best ones.
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