For which purpose do you save?
Is it for retirement? Health care expenses when older?
Or, perhaps you’re saving up to buy a house, or send a kid to college. You might even be saving up for something as modest as a short vacation in a few months from now.
The point is this: there are many reasons for us to save money, and these can vary from long-term all the way to short-term in nature. And these reasons might be very different when you survey a group of people.
For the shorter-term goals which don’t involve 401(k) accounts, home equity, or other such assets which are really not “liquid” (read on financial chemistry), we might want to consider targeted savings accounts. It’s something I’ve embraced recently, and I’m liking how it’s going so far. Along those lines, I thought I’d share a bit.
First, we can acknowledge that there are different alternatives to targeted savings accounts. One option is to simply use one checking account and diligently follow your budget. This works, and has been used by many people for quite some time. Alternatively, I’m guessing many people don’t go this far and just pay things out of whatever they have, budget or not.
With targeted savings accounts, you can create a completely separate account for a given savings goal you have. Benefits of targeted savings accounts include:
- Clarity. If you’re throwing everything into one account, it can be easy to lose sight of the specificity of your savings efforts. Putting money is a separate account for a given purpose makes it clear for what you’re saving.
- Separation. Instead of comingling money, you’re keeping money for one purpose set aside for that purpose alone. It makes you think before you pull money from your “car” account in order to pay for your upcoming weekend getaway.
- Disciplined saving. With targeted accounts, you can automatically move in set amounts of money each month into an account. For the aforementioned “car” savings account, you could set aside money each month to be put away for such a purpose – even if you already own a paid-off car. This way, when you have to buy a car, you’ll have money there for the purchase instead of potentially taking on a loan.
- Peace of mind. It can be nice to rest easy knowing that you’re saving for specific expenses that are on the horizon. Even if they’re fun things for which you’re saving.
For me, it’s been easy to get started with Ally. There are other alternatives that might be really good, but this is the one I went with. It’s been easy to make happen.
In my case, I set up a checking account and have targeted savings accounts. Each month, at a specific day of the month, a set amount of money gets pulled into the few targeted accounts I have. Yes, a car fund is one of them 🙂
So far, so good. Wondering why I didn’t fully embrace targeted savings accounts earlier, but glad I’ve gotten started!
My Questions for You
Do you use targeted savings accounts? If yes, how has gone for you?
If not, why so? Also, what alternative approach (if any) do you use?