Annual Savings Account: What It Is and Why You Need It
While most people are familiar with the concept of an emergency savings account, I’d like to encourage you to open up an account that I like to call my Annual Savings Account.
Even though most of my expenses both in my business and personally are the same every month (things like the mortgage, car payments, payroll, etc.), there are some expenses that only get paid on a quarterly or annual basis. On the personal side, this includes things like summer camp, replacing our car tires and Christmas. In my business, this includes those annual subscriptions and our annual team retreat.
Many people get knocked off their financial game when these one-time expenses come up, because even if you are expecting them, they’re hard to budget for since they aren’t paid every month.
That’s where the Annual Savings Account comes in. This is a completely separate savings account from my Emergency Savings Account, and is used solely to pay for expenses that I anticipate but that are only paid for quarterly or annually.
While I recommend opening a high-yield savings account for your Annual Savings Account, if possible, what matters more are three things:
✅ There are no monthly maintenance fees or other fees
✅ The account doesn’t limit the number of withdrawals you can make (or the limit is high)
✅ It’s easy to move money from this savings account to either your credit card or your household bank account (wherever those non-monthly expenses get paid out of)
Here are a few no-fee, high-yield options to look into:
Ally Bank
Marcus by Goldman Sachs
Once you have this account, you’ll want to figure out how much to deposit in it each month to cover those non-monthly expenses.
For example, at the end of every year, I make a list of all the non-monthly expenses I anticipate for the following year. It might look something like this:
💰Christmas – $1,000
💰 Summer Camp – $3,000
💰 Excise Tax on our vehicles – $400
💰 Tires for our car – $1,000
In total, that’s $5,400 or $450/month. To make sure that I have enough funds to cover these expenses, I’ll deposit $450 each month into my Annual Savings Account. Then, when I need the money, I can either pay for expenses directly from that account, or reimburse my household checking account or my credit card.
So why keep this account separate from your Emergency Savings Account?
Because your Emergency Savings Account should be just that – for emergencies that come up or opportunities you want to take advantage of. I rarely (if ever) touch my Emergency Savings Account, whereas I am often taking money out of my Annual Savings Account.
By having an Annual Savings Account, you’re ensuring that you’ll always have the funds to pay for those non-monthly expenses and take the panic out of that bill coming due.