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Most Americans have a variety of bank accounts to serve different needs, from basic checking accounts for day-to-day transactions to certificates of deposit for long-term savings. If you have multiple savings accounts, at least one should be dedicated to your emergency fund. In fact, money blogger and influencer Dasha Kennedy says you shouldn’t think of savings accounts and emergency funds as the same thing.
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In a recent Instagram post, President Kennedy referred to savings accounts and emergency funds as “cousins, not twins.” The self-described “financial activist” also explained the key differences between a savings account and an emergency fund.
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savings account
Kennedy wrote in the post that savings accounts are “perfect for planned spending and achieving short- to medium-term financial goals.” She also said that savings accounts are “great for saving money for specific future purchases or experiences.”
For example: If you plan to buy a new laptop next year, use the money from your savings account.
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emergency fund
President Kennedy added that the fund is “solely for unexpected emergency expenses that cannot be covered by regular income or other savings,” and that the fund should serve as “an emergency financial safety net.” Ta.
For example: If your car breaks down unexpectedly and needs immediate repair, you dip into your emergency fund to pay for it.
Which expenses are worth saving compared to emergencies?
Here are some other guidelines Kennedy shared about which expenses should come out of which accounts:
scenario
savings account
emergency fund
plan a vacation
sudden unemployment
buying holiday gifts
Save for a new phone
medical emergency
Purchasing concert tickets
unexpected home repairs
unexpected legal costs
baby shower planning
unexpected travel expenses
The amount you should keep in your emergency fund depends on a variety of factors, the most important of which have to do with where you live, the number of people in your household, your income, and your monthly expenses. Generally, you should aim to save enough money to cover at least three to six months’ worth of expenses. A good place to build your emergency fund is in a high-yield savings account, where your balance can grow faster.
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This article originally appeared on GOBankingRates.com: The difference between a savings account and an emergency fund by financial activist Dasha Kennedy
