Americans have trouble saving. Thirty-nine percent of Americans have no savings at all, and 57 percent have less than $1,000, according to a 2017 GOBankingRates survey. Monthly budgeting (and saving) is beyond many of us.
But savings is critical to lay the foundation for your financial security. Without a nest egg to rely on in an emergency, such as an accident or job loss, or a fund to pay for milestone expenses like an education or retirement, you can put yourself in position to be in constant struggle with your finances.
You can make it easier to save with the right approach. Having multiple savings accounts is an updated version of an outdated method and can help you build your savings, keep your goals on target and make it easier to manage your money.
The classic technique to manage your funds is known as the envelope method. It’s a simple approach: Designate envelopes for each item in your budget, such as food, gas, down payment, etc. Each month, you also put a certain amount into the savings envelopes. For instance, you may have savings envelopes for a wedding, college funds, travel or other big purchases.
Many people have used the envelope method to stay within their budget and manage multiple financial goals. Though it is a straightforward approach, stuffing envelopes and keeping them in your house may not be entirely practical in our modern world. However, the concept remains powerful and it can be applied using a more modern method.
The modern method is to open multiple personal savings accounts, each one acting like its own “envelope.” Just as simple to understand and far more secure than paper envelopes filled with cash, using multiple savings accounts for specific purposes can help you stay organized and realize your savings goals.
Here are four kinds of savings accounts you should consider:
1. An emergency fund. Many financial advisors suggest having an emergency fund equal to six months' salary. This keeps you secure if you should suffer a financial emergency, like a medical bill, job loss or other unexpected life events.
2. A big-purchase fund. If you have to make a big purchase in the future, a separate account will help you measure your progress and give you a picture of how you’re progressing toward your goal.
3. Car fund. Even if you just bought a new car, set a little aside from each paycheck into a car fund for potential repairs.
4. Monthly expenses. Keeping a separate account for monthly bills, entertainment, groceries and other items can help you stay within budget and meet your expenses each month.
Learn more about your savings account options.