This page may contain links from my partners. I may receive a small commission if you make a purchase through a link, as an Amazon Associate I earn from qualifying purchases.. Please read the disclaimer and privacy policy for more information.
How many savings accounts should I have?
Everyone should have these 4 different savings account types; no matter what income or bank you have! This post will walk you through all four savings accounts. What they are, why you should have them and how much should be in each one.
If you’re interested in learning how to budget and save money; consider joining my email list for all my latest budget tips and for access to my free resource library (aka all the budget templates for google sheets you could ever want).
Table of Contents
Why you should have more than one savings account.
Keeping your money in different savings accounts is like storing it in different folders; instead of one massive drawer. Having more savings account types is just to help you better organize where you want your money and what you want it to be used for.
You can think of your bank account as a backpack.
You go to English class and throw your notes in the backpack, then you go to Econ and throw those notes in the backpack as well. You feel good because all of your notes and homework assignments are safe in your backpack, however, different savings accounts work as folders or binders. If you put your notes for English class in a specific folder with the rest of your English class assignments, you know exactly where everything is. You won’t need to worry about where things are, because you’ll know exactly where to find it when you need it.
Some other budget gurus even think everyone should have SEVEN bank accounts! So four doesn’t seem too bad now does it?
With that, let’s get into the specifics!
Emergency Fund
What is a Emergency Fund?
This savings account is your security net. It’s your “oh crap, pandemic round 2, I’m unemployed” fund. This account is for when you don’t have another option and you need money now. You will never touch this money unless it’s an absolute necessity. Like the name suggests, emergencies only.
How much should I have in my Emergency Fund?
How much money you need will vary person to person. But, you should aim to have about 6 months worth of expenses (rounded up) saved here. Meaning, if you spend $2,000 a month, you should try to save $12,000 into this account.
Yes, that means you have to figure out how much you spend each month. Tracking all of your expenses can seem overwhelming, but learning how to budget and save money is worth it!
This way, if you do lose your job or are unable to have an income for whatever reason, you know you will be able to pay your rent and other bills for at least 6 months.
Saving up for this fund will take some time and that’s ok! I recommend auto-transfering money into this account every month until you hit your 6 months mark. Don’t forget to add more money if your living expenses change, aka, more expensive rent, new car purchase, etc.
Note: You shouldn’t be investing this money. Admittedly, you get a WAY larger return from the market than any savings account will be able to offer you.
However, we keep this money in the bank for peace of mind and ease of access. If you unexpectedly need to pay a thousand dollars in rent, you know you can write a check or send a venmo payment and the money is there. That might not be true if you have the money invested.
Not to mention how a huge market downturn could affect the amount available for you to use.
Travel Fund
What is a Travel Fund?
My favorite savings account!!
The point of this account is to fund your travels! Organizing your finances DOES NOT mean you can’t travel. The goal of this account is to make traveling feel more feasible and less like an “out of pocket” expense.
Related: If you want to read more about traveling on a budget and saving for travel, click here for all my budget travel tips!
Everytime I would come back from a trip, I would feel like there was a massive dent in my bank account. Now however, since I’m setting aside money for travel every month, although my credit card bill might be higher, I’m no longer scrambling to figure out how it’s going to get paid.
How much money should I have in my Travel Fund?
How much you want to save really depends on you and how much you want to travel!
Is your family planning on taking a vacation this year? What about your girl squad? Start saving money to travel now, before your trips are planned.
I would recommend transferring money into this account every month, it doesn’t have to be a lot, even just 50 dollars a month means after a year, you have 600 dollars to spend anywhere in the world!
Sinking Fund
What is a Sinking Fund?
A Sinking Fund is made to save and pay for those big expenses you know are coming.
I got the idea for this account when I went to get an oil change for my car, I assumed this would be a $30-$40 dollar expense, max. To my surprise, I apparently needed new tires and my bill was 700 dollars MORE than I had anticipated. So after some panicking and emptying my small savings, I decided to set up an account specifically to cover these types of expenses.
Little did I know this was not an original idea, a term already existed and all I had done was discover why I should have one.
How much money should I have in my Sinking Fund?
The amount of money to transfer into this account will vary person to person but it’s a fairly simple formula. To figure out your specific number, add up all of your expenses that aren’t paid monthly. For me, this includes: car insurance, car maintenance and any yearly subscriptions.
As you can see from the table above, with these expenses, you would transfer $219.95 into this account every month. Then when the bill becomes due, you know exactly how you’re paying for it all!
If you want to go one step further, you can make several Sinking Funds.
You can break this account down into smaller more specific sinking fund categories depending on your needs.
Sinking Fund examples / Sinking Funds categories include:
- Car Expenses,
- Christmas Spending,
- Medical Costs,
- Home Repairs,
- anything you know you’re going to have to pay for eventually.
A Sinking Fund is to prepare for expected expenses and make it feel less like an out of pocket expense.
Other
What is it?
The last savings account I’m recommending is to save for…. Well, whatever you want! I personally am saving for a down payment but this should be for whatever you personally are interested in! Some examples could be: a car, laptop, downpayment, wedding, etc.
How much money goes in this account?
First and foremost! I would only recommend starting this savings account once you’ve finished filling up your Emergency Fund. Emergency Fund should take precedence and is the number one priority.
(Are you thinking “but I want a house now! I’ll make an Emergency Fund later” because this is an even BIGGER reason why you should save your Emergency Fund first!
Let’s say you buy your house and then lose your job. Now you have a mortgage to pay for, no income AND no Emergency Fund. If your Emergency Fund was fully funded, you wouldn’t have to immediately worry about how you’re going to make those mortgage payments.)
How much money to save here depends on what you’re saving for. If you’re saving for a downpayment, all the money you were previously allocating to your Emergency Fund could be transferred into this account.
However, if you’re saving for something smaller than a downpayment, like a laptop, you could allocate a smaller portion here and invest the excess.
Final Thoughts
Opening new savings account types is easy, and sometimes if you’re lucky, your bank may even offer you an incentive for opening a new account (yay free money!!), so you have no excuses! Get your finances under control and get your money organized with more savings accounts!
I used to always stress over big unexpected expenses. Organizing the money in my bank account helped me build a safety net, prepare for the future and created peace of mind. I know it can do the same for you!
We need less stress man, my hair is already turning grey….
Let me know what savings accounts you have! Leave a comment down below!
What other budget tips do you want to read about? Let me know!
I do all of the above but in one money market account. i keep an xcel spreadsheet with columns for travel, insurance, medical, personal etc. so i always know what i have and can save for what we need. it gets re evaluated at the beginning of the new year. we earn more interest having it all in one place because the higher balance, vs. spreading it into multiple accounts. i just opened up our first I bond account can’t beat that 9+% interest!! love learning more about finances, its my jam
Hi Gloria, yes if one account works for you that’s fantastic!!! That’s what I love about personal finance, there’s general guidance but at the end of the day it’s what works best for you!