- Emergency fund. This savings account will (eventually) have six months of living expenses saved in it. In the event that I lose my job or some other calamity strikes, having at least six month's worth of living expenses in an account that is easy to access can be a life saver. Note that I don't use a credit card for this. I've seen quite a few people who have a crisis or lose their job then use a credit card to pay for everything--food, gas, bill payments--which only puts them even deeper in debt at a time that they can least afford it. Everyone should have an emergency fund.
- The "my friend is having a crisis" fund. I usually keep about $200 in this account. I have a lot of friends and at some point it is a given that one or more of them will have a crisis so I use this money for everything from taking them for a coffee at Starbucks to giving them cash when I feel it is warranted (which isn't a loan but just a small amount of cash that I can give as a gift and not expect back). The good part about having this account is that I don't have to worry about taking money out of my everyday expense budget if I need to run to the store and buy someone who is in the hospital flowers or if someone NEEDS cash (and with only $200 available there is a built in limit to how much cash I have to give someone so there is no temptation to give more than I can afford).
- My travel fund. This savings account is where I save money to use for travel which is one of my main goals in life. We love to travel but since we pay cash for everything these days, having this account automatically tells me when we can travel and how much we can spend. Little bit of cash in the account? We need to save more or CraigsList some stuff. Lots of cash in the account? We can plan a longer/more elaborate vacation.
- My retirement fund. I do save a small percent of my income and put it in this account. This is money that I NEVER, EVER want to touch until I am around 70 years old. When I get more money in this account I will diversify it into other, higher yield investments but for now, there isn't much in this account but it is a start. I find that having this account and keeping it separate helps me see that I am saving for my future while not making me feel like all of my savings is being held until I am old--I want to enjoy some of my money now which is what the other savings accounts are for.
It is fairly simple to set up separate savings accounts. These accounts that I have are fee free and earn a teeny tiny bit of interest. Most are attached to checking accounts which has the added bonus of being able to be used by the bank to cover any accidental overdrafts at no charge. I highly recommend that people have actual savings accounts so that they can see the money building up and, unlike keeping their extra money in a cookie jar, can be safely held at a bank until you need it.