Why You Need More Than One Type of Savings
Putting money aside is one of the smartest financial habits you can build. But not all savings are created equal. While it might seem easier to keep everything in one account having separate savings for emergencies and future goals can help you stay organised and avoid dipping into money you didn’t mean to use.
Let’s break down what makes an emergency fund different from a regular savings account and why it’s helpful to have both.
What Is an Emergency Fund?
An emergency fund is a specific pot of money set aside for unexpected events. Think of it as your financial safety net. It’s there when life throws you a curveball.
You might use your emergency fund if:
You lose your job or can’t work for a while
Your car breaks down
A medical or dental bill comes out of nowhere
Your pet needs urgent care
You need to cover essential costs during a crisis
The goal of an emergency fund isn’t to grow your money. Your emergency fund should be accessible, safe and ready when you need it most. It’s your ‘just in case’ money and using it should come with no guilt.
How Much Should You Have in an Emergency Fund?
Everyone’s situation is different. A common rule of thumb is to aim for three to six months' worth of essential expenses. This includes things like rent or mortgage payments, groceries, power and transport.
If that sounds like a lot don’t panic. Start small — even $500 or $1,000 is a great starting point. The most important thing is to start building it gradually and keep it separate from your everyday spending.
What Is a Savings Account?
A savings account, on the other hand, is usually for planned or future expenses. This could include:
Holidays
Home improvements
Christmas shopping
A new phone or car
School or study fees
Unlike an emergency fund savings accounts are meant to be spent at the right time and for things you’ve thought about, budgeted for and chosen to work toward. They help you avoid going into debt for big purchases by spreading out the cost over time.
Can I Use One Account for Both?
Technically yes but it’s not ideal. Mixing your emergency fund and other savings makes it harder to track what’s what. You might think you’re on track for a holiday, only to realise you dipped into that money when your washing machine broke.
Keeping separate accounts creates mental clarity. You always know how much is available for an emergency and how much is for your goals.
Most banks allow you to set up extra savings accounts for free. You can nickname them things like ‘Emergency Fund’, ‘Holiday’ or ‘New Car’ to stay organised.
Where Should You Keep Your Emergency Fund?
Emergency funds should be easy to access but not too easy. You don’t want to be tempted to spend it on non-essentials but you also don’t want it locked away in an account you can’t get to in a hurry.
A high-interest online savings account or call account is often a good balance. It’s separate from your everyday spending, earns a little interest and can usually be accessed within a day if needed.
Why You Need Both
Emergency funds and savings accounts serve different financial purposes:
Emergency funds give you security. They reduce stress and keep you from falling into debt when life gets tough.
Savings accounts help you build towards goals, allowing you to spend confidently on things that matter to you.
Having both gives you flexibility and confidence. You’re prepared for the unexpected and still free to plan for the fun stuff.
A Safety Net and a Stepping Stone
An emergency fund is there to catch you. A savings account helps you move forward. Together, they create a stronger financial foundation that supports both your peace of mind and your future plans.
Start where you are, build what you can and watch the difference it makes. Even a small step towards separating your savings is a powerful move toward better financial wellbeing.