Regardless of your financial status, there are five basic financial accounts that everyone can benefit from having. If you are missing one of the following accounts, you may want to explore your options—having that extra account might help to simplify your financials.
A checking account for bills
Your fixed monthly bill payments, such as your rent or mortgage, car payment, and credit card payments should come from this account. Leave extra money in this account to cover variable monthly bills, such as your utility bill. Having a separate checking account just for bills can help ensure that you never overdraft or miss a payment due to lack of funds.
A checking account for spending
It may seem confusing to have a second checking account, but a lot of banks will offer a reserve account free of charge. You could use this account for your miscellaneous spending, purchases, entertainment, and so on. By assigning this type of spending to its own checking account, you’ll be able to have a firmer grasp on your finances and without overspending on non-necessities. You can set a specific amount of money aside each month (or each paycheck) to go into this account, and once that money is gone, you won’t accidentally spend the money that’s set aside for your bills.
Savings account for long-term goals
If you want to start saving for a long-term goal (such as buying your first home), it’s never too soon to start. But the best way to save money is to actually utilize a free savings account. Not only will this help to separate this savings from the rest of your money, but over time, you could accumulate interest.
An emergency fund
Similarly to saving for a long-term goal, it’s also important to save enough money that will last you for a few months in case of a financial emergency. Many people find it helpful to create a separate account for this; preferably, create one that makes it difficult to make withdrawals. Once you get an emergency fund up to your pre-determined amount, it should be forgotten about unless a true emergency arises, such as a medical emergency or job loss.
Even if you’re still young, it’s never too soon to start thinking about your retirement. Careful planning and saving are the stepping stones to a rewarding retirement, and there a lot of different plans and retirement fund options out there to choose from. IRA accounts and 401(k) plans are some common examples.
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Nothing above is meant to provide financial or tax advice. You should meet with appropriate professionals for such services.