Everyone knows they should be saving money, but few people actually do. I’m sure you’ve heard by now that almost 60% of Americans don’t have enough savings to cover a $1000 unplanned expense. A lot of that probably has to do with a lack of information on what to do with the money you have saved. It’s a bit more complicated than just putting it into an account and not touching it. If you want to get ahead you need to take a more hands on approach.

Saving money gives you a safety net for when things go wrong and allows you to make the big purchases you want when things go right without going into debt. Having adequate savings gives you peace of mind. Knowing that a car repair, an unexpected medical bill, or losing a job won’t ruin your finances will allow you to sleep better at night.

Adequate savings also gives you more options. The more money you have saved away, the more flexibility you have if you want to move or change paths. There really is no downside to saving.

Have more than one savings account. Different financial goals have different time frames and amounts you want to reach. The best way to reach them is to have a separate account for each goal. The separate accounts will keep you focused on the goals and help you stay on track. They will also prevent you from dipping into money you have saved for one goal to accomplish another. For instance, it will stop you from using the money you saved for a down payment on a house to purchase a new car.

Local savings account probably isn’t the best place for all your savings. Depending on the time frame you have to accomplish a goal, you have various options on where to store your savings.

  • Emergency savings, enough to cover 1 month of expenses or a large repair can be kept in your local savings account at whatever bank you have. You will not be getting great returns on this type of account and it should be thought of as a safe place to store money in case of emergency. This account will also be your most liquid, you should be able to move funds quickly to and from this account.
  • Short term goals (think 3-5 years) are best kept in a money market account. This is also the best place to store the rest of your emergency fund (about 2-5 months of expenses depending on your situation). This type of account will give you better returns than your local savings account but probably won’t beat inflation. It has small guaranteed growth but will give you the ability to withdraw funds quickly.
  • For longer term goals, you want that money to grow as much as possible. And you want to take advantage of compounding interest. For these goals you might want to engage a financial planner to help you craft a plan for reaching them through investments.

Make saving automatic. Saving should not be optional. Decide on a set amount you plan to put away every month without fail. As soon as each paycheck comes in, that amount should be moved into the appropriate savings account. If available, your retirement savings should be automatically deducted from your paycheck and put into your 401k.

Other savings should also be automatic. Most banks will allow you to set up automatic transfers from your checking to savings account and you should opt into that. If the money is not sitting in your “spending” account you are much less likely to spend it.

Saving is one of the most important things you can do to improve your life long-term. It will give you peace of mind knowing that an emergency won’t financially ruin you, and it opens opportunities for positive changes in your life.

So challenge yourself! Make a separate account for each of your savings goals (with appropriate types for each time frame) and start saving for them automatically.