Finance

Save Yourself from a Financial Blizzard

When it comes to saving, there’s no one-size-fits-all approach. Consider these seven common savings scenarios and the best types of accounts for each.

Don Milne Dec 12, 2018

Most people have heard the claim that the Inuits have more than 50 words for “snow.” Snow is not just snow. The Inuits recognize that there is a difference between softly falling snow and snow that is good for sledding and snow that has crystalized and even wet snow.

We would probably be better off if there were multiple words for “savings” because there really are numerous different meanings. Maybe it is time to expand the English language to create new words for the various kinds of savings?

Consider these seven savings goals and the best types of accounts for each.

Savings Goal #1: Save-me-ings

This is an emergency fund. Nobody is immune from financial surprises that can hit your pocketbook hard. Kids need to visit the doctor, cars need unexpected repairs, and things at home break, sometimes a window, sometimes a water heater. Everyone should have an emergency fund to cover these unscheduled money needs.

Financial experts recommend an emergency fund equal to three to six months of expenses. That can be a hard task for most people, so a more realistic goal is to start with a $1,000 emergency fund. After achieving that, you can work on making it bigger. A good place for Save-me-ings is a bank savings account so it is easily accessible when emergencies happen.

Savings Goal #2: Gray-vings

This is saving for your retirement. While most people participate in contributing to Social Security, that is usually not enough for most people’s retirement plans. Right now, the average Social Security recipient gets about $1,400 a month. Could you get by on that? Financial experts recommend that you save 10-15 percent of your income for retirement needs. You need this savings to grow faster than inflation so diversified growth stock mutual funds are a good place for Gray-vings.

Savings Goal #3: Today-vings

Some people need to tap into savings to supplement retirement funds. You don’t want this money completely in stocks because, while stocks generally go up over time, they can drop too and people that need today-vings can’t afford to see their nest eggs shrink. 

A good choice for this group is to buy laddered certificates of deposit so you get access to your money once a year without penalty. The way to do this is to set up a 1-year, 2-year, 3-year, 4-year, and 5-year CD series. When the first CD expires, replace it with a 5-year CD. This will give you the current highest CD rate available and still have access to a maturing CD each year. You should be able to keep up with inflation using this method.

Savings Goal #4: Pay-vings

While it is easy to use loans to buy big-ticket items, it does come with a cost of interest that can add up to thousands of dollars over the years. If you save up for your purchases ahead of time by paying yourself into pay-vings, you can buy things later for cash. Many people use this system to save up for appliances or even automobiles. It is also a good way to save up for the down payment on a house. A bank savings account is a good place for this kind of savings.

Savings Goal #5: HSA-vings

Health insurance premiums can be huge. If you are generally healthy and a low consumer of health care services, these costly premiums can cost you thousands of dollars every year for no benefit. A better option, if provided by your employer, is a high deductible health care plan. The premiums are just a fraction of a traditional health care plan. You can bank the difference in what you don’t spend on premiums in a Health Savings Account (HSA). If you don’t use the money, it stays yours year after year for future medical needs. HSA-vings are a specialized account that you will have to set up through your employer.

Savings Goal #6: Babe-vings

Paying for college can give you sticker shock these days and by the time your kids are high school graduates you can guarantee that it will be even more expensive. One way to keep pace or even outpace education inflation is to set up a 529 plan when you child is just a baby. That gives you up to 18 years to see the money grow tax free if used for education purposes. Most 529 savings accounts are invested in mutual funds.

Savings Goal #7: Slave-ings

If you are self-employed you need to pay quarterly taxes to the government. Put your Slave-ings in a separate bank savings account so you can easily access it when these taxes are due.

The Inuits thrive in a difficult climate because they know how to tell the difference between different types of snow and act accordingly. To financially thrive, you need to recognize that there are different types of savings and you need to manage each type differently — otherwise you may find yourself lost in a financial blizzard.

Talk to a Zions Banker today about your savings goals and how to accomplish them.

Don Milne is Financial Literacy Manager for Zions Bank.

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