Short Term Savings Account
When creating your budget, we mentioned setting up two separate savings account. Short term savings account and a long-term savings account. What is the difference and why two? Short term savings account is for those things that you “want,” remember the idea of budgeting is not to keep us from getting what we want, but to track our spending and have control. If there is something “extra” wanted, then just create a plan and budget for it. If a new TV, game console, that Michael Kors purse, shoes, or that vacation, then that is what short-term savings is for. You budget and save up to make the purchase.
Long Term Savings Account
Long term savings account is for those big unexpected issues. This would include, losing a job, big home repair, big car repair, or other unexpected big-ticket items that will impact you. Long term savings should be built up to the point that you could support yourself for up to 6 months if need be. I would also suggest that your long-term savings account be setup in a separate banking institution then the bulk of your other accounts. Long term savings should be something you can get to, just not instantaneously. By having it separate, it will also be out of sight and out of mind. Since long-term savings for the most part will be just “sitting,” check out interest rates and get the biggest return out of your money.