- Share This Post
- Pin It
- 3
- 5
-
Sparkle (0)
Keeping separate accounts for different financial goals/objectives might be helpful, but they can also result in account overload. In an era of internet banking, credit unions and frequent job changes, it's not unusual to have several 401Ks spread over different companies, or to have savings or checking accounts at three or four -- or more -- banks. Then add in the alphabet soup of HSA (health saving accounts), FSA (flexible spending accounts) and the variety of IRAs (Roth and traditional), and it's not surprising that some of us are asking: how many account is too many? As our finances grow increasingly complicated, here are four accounts that would benefit most people:
Emergency Fund: So much has been written on the emergency fund that my little paragraph here can't do it justice. But suffice it to say that an emergency fund is a lifesaver in, well, emergencies (think car breaking down, job loss, furloughs, etc.).
Car Repair/Big Expected Expenses Fund: Some people have one big fund, but I've found it might be helpful to separate your "just-in-case" savings into two: the true emergency fund (most likely used for job loss), and an "expected expenses" fund. For example, if your $10,000-roof has a life of 20 years and you are already on year 16, you know you will have to replace it in the next 5 years. That is a big expense, but it's not an unexpected expense. By setting aside money periodically, the expense will be covered by the time the bill for a new roof arrives. Another example is periodic car repairs. I have an older car, so I know I will have to pay $1,000-$2,000 a year for check-ups, radiators, timing belts, tires -- though thankfully not all at once. By putting $150 a month into a Car Repair Fund, I maintain my peace of fund and my car's maintenance schedule.
Big Dream Whatever Account: What is life if you don't dream a little, right? It's easy in the day-to-day bustle to lose track of your bigger leisure goals. But even a little bit of money here and there adds up. If it's your life's passion to see the Stonehenge, have a wedding in Disney World or race in the Italian countryside in a 1960s Vespa, a fund dedicated to that purpose can both encourage and inspire. For example, I have a joint savings account with my boyfriend that we have earmarked for a Galapagos cruise in the next 2-4 years. Alternatively known as Yes We Can (Save $10,000 to See Turtles) Fund, this joint savings account gets the money we save when we manage to resist the lure of takeout.
Taxes Fund: This is especially important for freelancer/non-W2 workers. When you are an employee with a W2, your company takes the tax out of your paycheck. But when you are freelancing or self-employed, no taxes are taken out of the paycheck. Be sure to put away at least 25% (some other freelancers I talk to put away 30% to 33% to be safe) as a "tax provision" so you don't get a sticker shock come April 15.
_
Well-Heeled Blog -- @WellHeeledBlog -- Savvy Living Through Personal Finance
