The money you save can’t just be put into a savings account to be forgotten. You have to decide how the money you set aside is to be allocated so you can put it into the places where it will be the most effective for you. So you need to break your savings up the right way to make that happen.
The easiest way to divide savings up is by breaking it up for the time you plan on using it:
- Short-term savings. This is money you have set aside for the near-term. It’s the base amount you have in your primary savings account in case of emergencies, along with money you have set aside for one-off expenses that don’t fit into your regular budget, such as money you’ll use to purchase big-ticket items like electronics or furniture or money you set aside for the winter holidays.
- Mid-term savings. This is money you have set aside for things you want to make happen in the next few years. It’s the savings you have for things like making down payments on loans for your next car or home. It also includes the money you set aside for a financial safety net in case you face a period of unemployment or extended illness. This is the money that keeps you stable and helps reach your goals.
- Long-term savings. This is the money you have saved for big financial events in life, namely sending your children to college and supporting yourself during retirement. These types of savings are usually kept in separate accounts and may be supplemented by money you have tied up in investments. It’s the money you use to promote lasting financial security and success for you and your family.
Source: Consolidated Credit