BY Grace Okogwu June 26, 2020.
When you think of savings, it’s easy to think of putting money aside for several purposes in one bulk. However, according to financial experts, when it comes to proper savings, there are several kinds of this form of financial discipline.
Largely, these various types of savings are categorized based on the purposes they cater to
As the name implies, long-term savings serve long-term purposes and so, usually last for a long period of time.
Long-term savings are savings designed to mature over a long period of time too. Usually depending on the type of account, you operate or the system an e-commerce platform operates, one may or may not have certain restrictions to withdrawing the said funds.
It’s important to keep in mind the interest rate your long-term savings account will yield as well as be mindful of making withdrawals before the maturity dates set for the account. The latter usually comes with implications such as a cut on interest rates. Another important factor to keep in mind is comparing interest rates of several savings accounts to be on the winning side of getting the best interest rate in the market.
You definitely need to pay attention to the fees a long-term savings account will incur because these fees could bite your savings in the butt and rip off every interest acquired.
Just like the preceding type of savings, an emergency fund as its name implies is an account set up for emergency situations. Think of the unexpected things that could happen to a person such as; falling ill, losing a job etc, this account takes care of these kinds of emergencies.
More Examples on Simple Interest
In non-financial terms, think of Emergency Funds as life jackets which help a person stay afloat during an emergency situation or unforeseen circumstances.
If you’re uncertain on the percentage to pull from your income to fund this saving, it’s best you go after a financial advisor to put you through.
Short -term savings are funds designed to stay in an account for a short period of time. Usually, funds which last within 6 months to three years, are considered to be short-term savings.
This is almost similar to emergency funds but for expenses which always come up. Think of gifts for a family member’s birthday, gifts during holidays etc.
This savings type is referred to as recurring because they’re always coming up.
Splurge Or Just For Fun Savings
This is a savings set aside for fun stuff. It usually consists of leftover savings a person set aside to attend to fun activities like shopping during Black Friday, buying that phone you’ve always wanted etc.
Remember that as a general rule when saving, certain percentages of a person’s income should be properly drafted out to go into these various types of savings. Again, it is very important to consult a financial advisor or a person’s account officer for financial advice.
It is also important to note that savings is a habit which has to be cultivated and improves over time.