When it comes to savings advice, everyone has heard about savings accounts and emergency funds. But what’s the primary difference between the two? And do you really need both?
What Is A Savings Account?
A savings account is a bank account that you use to stash away money intended for planned expenses. For example, you might be saving money for a down payment on a house, childcare expenses, or to remodel your kitchen. These are all goals that require money to achieve and a savings account can help you get there.
What Is An Emergency Fund?
An emergency fund is also a type of bank account you can use to save money.
However, this type of account is designed to help you cover unplanned life changes (hence the name). Examples may include the loss of a job, a death in the family, severe illness, or an economic recession. To avoid severe personal and financial consequences, most financial expert’s savings advice is to have three to six month’s worth of living expenses saved in your emergency fund.
Do I Need Both?
Although no one requires that you have both a savings account and an emergency fund, doing so can help you prepare for unexpected life challenges and maintain good financial health overall. Establishing both types of savings accounts will also help you develop discipline when it comes to your spending habits.
In short, no one wants to be stuck in a situation where they can’t pay their rent or buy groceries. Cutting back on unnecessary purchases to regularly contribute to a savings account and an emergency fund is well worth the sacrifice.
Where Can I Find More Savings Advice?
If you’d like to learn more about how you can achieve your financial goals or find wiggle room in your budget to establish an emergency fund, there are many resources available. Get great, personalized savings advicefrom a personal finance app or dive deep into all those personal finance blogs. You can also search the web to find free budgeting worksheets or sign up for a free budgeting webinar hosted by non-profit budgeting experts if that’s more your style. Visit this website for getting savings advice.