Disclosure: This post contains affiliate links, which means I earn a commission at no expense to you. Affiliate links are marked with the asterisks (*)
Saving money for the future is on everyone’s minds. I have multiple savings accounts, and they all have a different purpose.
With the way inflation is going and the cost of living is rising, I know that the idea of saving money seems ridiculous. It is important to save when you can, though. There are different reasons to save. If it means finding a way to add extra income, it’s worth it to be able to secure yourself should something happen.
Living paycheck to paycheck is hard. I’ve done it before, and when the car broke down or I had an unexpected bill, I panicked. Where was that money going to come from? It is possible to get into a position to start saving. I did that through freelance writing at first, and now I’m adding to it with my life insurance business. I’m also working on becoming an investment advisor to be able to add some income that way.
I’ll talk more of that in another post. This is about saving money. You need to open multiple savings accounts. Some are far more important than others, but they all have a place in life.
Why have multiple savings accounts?
Why bother opening up individual accounts? Couldn’t you just put the money straight into one account and see the interest build that way. That’s what I used to think.
Then I realized I had no idea what money I was saving for what. Was it all for retirement? Would some of it work for emergencies? What about when I just wanted a vacation? So, I decided to open individual savings accounts and nickname them in my online banking to know what they are all for. I also have a budget for each account to make sure the right amount of money goes into each one each month.
My multiple savings accounts are:
- Sinking funds
- Emergency funds
- Vacation funds
- Home/furniture funds
- Tax funds
- Retirement funds
- Dog funds
You’ll notice that I don’t have a savings account for a downpayment on a house. There are some changes to rules in Canada coming up for first-time buyers and I’m going to wait for that to come in before I start saving for that. I want to talk to my own financial advisor about that.
What are the separate savings accounts for?
The names may not mean much for you. Well, not all of them. I think some of the names are self-explanatory.
Retirement funds: This one is saving for my retirement. I have it in a Tax Free Savings Account in Canada rather than a Registered Retirement Savings Plan. I do have plans to change things as I move tax brackets but right now the TFSA is better for me tax-wise in the future. The money is in an investment account. I try to save 15% of my income each month. Depending on how well some passive income has done, I may only be able to save 10%.
Tax funds: Because I’m self-employed, I need to make sure I save part of my income each month. I save 30% of my income to cover federal and provincial taxes as well as my Canadian Pension Plan contributions that are mandatory for everyone for the country’s basic pension plan. This money goes into a higher-interest savings account rather than an investment account because I can’t risk losing the money when it comes to paying my taxes.
Vacation funds: This account is saving for vacation plans. It’s just a regular savings account as I don’t want to lose the money available. I put $100 per month in at the very least, but the aim is to save $200 per month to be able to have a vacation each summer with the kids.
Home/furniture funds: This is another relatively self-explanatory, and it’s another that is in a basic savings account. There are times that I need to replace furniture or buy items for around the home. I look for an item that I want, save up for that and buy it. This saves me putting anything on a credit card and then paying it off slowly and incurring the interest charges. I only pick one item of furniture at a time. If something else is needed, it would need to be an emergency, and that comes down to the other multiple savings accounts I have. I put $50 per month into this account.
Dog funds: I don’t pay for pet insurance for my two dogs. Instead, my ex and I have a savings account that we put in the premiums we would have paid each month. My pet insurance that I did once have never covered the yearly vaccinations, but now there’s this money in the dog funds that one of us can grab when we do have to take the dogs to the vet for any reason at all.
The two types of savings accounts that can initially look the same but do something different are the sinking funds and emergency funds. You want to have both if you can, but if you really can only choose one, opt for the emergency funds first.
Emergency funds: This should ideally be around three to six months of your monthly income. I currently have mine sitting at six weeks, but it did use to be higher. It had to be split in half when my ex moved out and we have to split all our finances because they were all joint. I put in $200 per month to build this up. Once it is at the three- to six-month mark, I’ll look at putting it into a low-risk investment option so that it’s there in case I need it but it starts making me some money. The money is there if I lose a client or can’t work for some time.
Sinking funds: This will always remain as a savings account and not an investment account. I want it to be easily accessible. The idea is that it’s there for any emergency payments. Think of things like the car breaking down, the boiler breaking, or some other unexpected needed. It was useful a couple of months ago when my car did break down and needed emergency repairs. I can also use it for an unexpected medical bill. I put $50 per month into this account.
I’m not including any savings accounts I have for the kids here. There are accounts for their educations, but that’s separate and not for me to touch.
Having multiple savings accounts helps me see what I’m saving for and how well I’m sticking to a budget. You don’t need all of these accounts, but it is worth considering some of them.
What are you struggling with financially? What would you like to save for? Share your thoughts in the comments below.
If you would like to get in touch about saving for the future, please feel free!