Beyond Emergencies: Why a General Savings Account is Essential

You don't need to limit yourself to a single savings account.

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Key points

• It's important to have money in savings for emergency expenses.
• You may have goals you're actively planning and saving for, and the money used to achieve them should come from a separate pot.

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When I first started earning a steady income, one of the first things I did with my money was build an emergency fund. My initial goal was to have enough money in my savings account to cover about three months of bills.

These days, my emergency fund is a bit more robust. That's because there's extra money in there to cover things like home and car repairs. Plus, since I'm self-employed, I'm generally not entitled to unemployment benefits, so I need a little more protection in the event that I'm unable to work.

But in addition to my emergency fund, I have two separate savings accounts. One contains money my husband and I have been stashing away for a second home. The other is money earmarked for vacations.

Having savings accounts for non-emergency purposes is a system that works well for us. And you may want to go that route, too.

Keep that basic layer of protection

It may seem easier to keep all of your money in a single savings account rather than spread it out across two accounts or more. But separating your savings could really work to your benefit.

Imagine you decide to keep all of your money in the same account. Over time, you may lose track as to what portion of that cash was earmarked for emergencies and what portion you're free to withdraw for things like vacations, furniture, and home renovations. That could lead you down a dangerous path.

Imagine you remove so much money from your savings that you're only left with two months' worth of essential living costs in the bank. If you lose your job and are unemployed for many weeks, that sum may not suffice in getting you through that crisis.

That's why it's a good idea to maintain more than one savings account. You don't necessarily need to open an account for each specific non-emergency item on your list. Rather, you can have a single savings account with money to spend on travel, holiday splurges, home improvement projects, and other things that are important to you.

But the key is to keep your emergency pile of cash separate. That way, you don't accidentally dip into it and leave yourself in the lurch when a bout of unemployment or another dire event strikes.

Make it easier to spend

Another benefit of having a savings account for non-emergencies? You might have an easier time dipping in.

If you keep your emergency and non-emergency savings together, you might stress over the idea of taking withdrawals. But if you separate those funds, you may have an easier time removing money for leisure purposes knowing your emergency fund is still fully intact.

Remember, too, that while it's a good idea to maintain separate savings accounts for emergencies and non-emergencies, there's no reason you can't keep your various accounts at the same bank. Doing so could make it easier to keep track of your money and access it when you need to.