Why You Need Two Savings Accounts


By: Matt Bell

You probably have a checking account, but do you also have a savings account? I recommend that you use two savings accounts.

The first savings account is your emergency fund.  It’s for all of life’s ifs—if you lose your job or incur significant medical or house repair expenses that you weren’t planning for in your budget and that are not covered by insurance. 

I used to believe that having three to six months’ worth of essential living expenses in such an account was the right target.  I now believe we should all have at least six months’ worth.  The recession has shown me just had bad things can get, and how long it can take for someone who loses his or her job to find another one.

The other type of savings account is for items you spend money on every year but not necessarily every month, such as a semi-annual property tax bill, an annual life insurance premium, or a once-a-year vacation. 

Take the annual total of all such items, divide by 12, and automatically transfer that amount from your checking account to a separate savings account each month.  When the bill comes due, just transfer the amount back into your checking account and make the payment from there.

Some people go even further, with separate savings accounts for each item—one account for vacations, another for property taxes. However, my wife and I find that maintaining one savings account for our emergency fund and one account for all periodic bills or expenses works well.

There isn’t a one-size-fits all approach to deciding what to save for in this periodic bills/expenses savings account.  We don’t use our account to save for gifts, home maintenance, or vehicle maintenance, for example.  We just let our monthly budgeted amounts for such items build up in our checking account.  But we do use this account to save for our property taxes, life insurance, homeowner’s insurance, vehicle insurance, and vacations.

If you don’t have a separate savings account for periodic expenses and bills, I recommend that you open one as soon as possible.  It’s a relatively simple step toward building a well-oiled financial machine.

Matt Bell is the author of three personal finance books published by NavPress, including Money and Marriage. He leads workshops at churches and universities around the country, and serves as Associate Editor at Sound Mind Investing, America’s best-selling investment newsletter written from a biblical perspective.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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