5 Essential Accounts Everyone Needs for Financial Freedom

Last Updated December 5, 2024 by Davina Kelly

Money slipping through your fingers? Feeling like no matter how hard you work, financial freedom is out of reach? Learning the accounts everyone needs can change that!

Financial freedom isn’t about earning more, it’s about managing what you earn and putting it to work in smart intentional ways. And that starts with setting up the right financial accounts. 

Without a plan your money can disappear fast – whether it’s on unexpected expenses or indulging in spontaneous spending.

In this post, I’ll guide you through the essential accounts everyone needs to achieve financial freedom. These accounts will help you budget like a pro, avoid debt, save for the future and provide peace of mind when life throws a financial curveball. 

This post may contain affiliate links, which means we will receive a commission if you purchase through our links, at no extra cost to you. Please read full disclosure for more information.

5 Accounts Everyone Needs for Financial Success:

1. Emergency Fund: The Foundation of Financial Security

An emergency fund is one of the first accounts everyone needs when it comes to managing their money. Think of it as your financial safety net – there to protect you against life’s curveballs. 

Unexpected expenses like car repairs, medical bills or even sudden unemployment can throw even the best-laid financial plans into chaos.  That’s where an emergency fund comes in as your financial buffer, It’ll keep you afloat when life happens.

Having some cash tucked away means you won’t have to rely on high-interest credit cards or loans to get through tough times. Trust me, your future self will thank you for it. 

So, the big question is, how much should you save? Most financial experts recommend aiming for three to six months’ worth of living expenses in your emergency fund. But if you’re self-employed or working in a high-risk industry, increase that to nine months for extra peace of mind. 

Keep your emergency fund separate from your regular spending account. You want it close enough to access when needed but not so close that you’re tempted to dip into it. 

A high-yield savings account is a great option – it earns you more interest than a regular savings account and still lets you access the money quickly if an emergency happens. 

Tip: Online banks offer higher interest rates and lower fees because they don’t have the same overhead as traditional banks. So they’re a smart choice for your emergency fund. 

To make saving easy, set up an automatic transfer every payday. Even if it’s just a small amount, consistency is key. Over time it will grow into a nice cushion of security. 

Need help getting started? Check out How to Build an Emergency Fund for a step-by-step guide to create yours. You can also gab my FREE emergency fund tracker below.

2. Retirement Account: Plan for Your Future Self

Retirement accounts like a 401(k) in the U.S. and a Pension in the UK are non-negotiable for long-term financial stability. 

The contributions you make today will provide you with a comfortable retirement tomorrow. Plus, these accounts offer tax advantages which will help your money grow faster.

Here are some options to consider:

Employer-Sponsored Plans

If you’re employed and your company offers a 401(k), Pension or a similar plan, this should be a top priority. Contributions to these plans lower your taxable income. For example, if you earn $100,000 but contribute $20,000 to your 401(k), you’ll only be taxed on $80,000. 

Self-Employed Options

If you’re self-employed, options like a SEP IRA or solo 401(k) provide similar benefits. The solo 401(k) also offers the choice to make Roth contributions, allowing you to diversify your tax advantages. 

Tip: Aim to contribute at least enough to take full advantage of any employer match. It’s essentially free money toward your retirement!

3. Roth IRA: Building Tax-Free Wealth

A Roth IRA (Stocks and shares ISA in the UK) is one of the most powerful accounts everyone needs because it allows you to grow your wealth tax-free. 

It’s like unlocking a financial cheat code. Unlike traditional retirement accounts, contributions to a Roth IRA are made with post-tax income, but with a Roth IRA, the magic is: all your investment growth is tax-free! 

This means you won’t get a tax break upfront, but in return, your money grows tax-free and when you retire, every qualified withdrawal is completely tax-free. 

The Roth IRA’s tax-free growth potential makes it a great option for young investors or those in a lower tax bracket who expect to be in a higher bracket later. 

Plus, contributions (but not earnings) can be withdrawn penalty-free at any time, which provides a level of flexibility that many retirement accounts don’t offer. 

You can contribute up to $6,500 per year ($7,500 if you’re 50 or older) to a Roth IRA and £20,000 to a stocks and shares ISA, so aim to max it out if you can. This is a great way to build tax-free wealth while complementing other accounts like your 401(k) as it provides tax diversification in retirement.  

Tip: Start your Roth IRA at a low brokerage like Vanguard and automate your contributions to build up your balance effortlessly. 

4. Big Purchase Savings Account: Saving for Life’s Goals

Once you have your essential accounts in place, it’s time to start saving for those big-ticket goals. This account is for significant purchases that require planning and discipline, like a house down payment, a new car or a dream vacation. 

Many people make the mistake of prioritising these goals before setting up emergency or retirement funds, which can lead to financial instability. Prioritise the foundational accounts first then start allocating funds towards this account. 

Since you’ll want this money in a few years, but not immediately, keep it in a high-yield savings account. Or if you won’t need the funds for five or more years, consider investing in low-risk options like index funds for potentially higher returns. 

Tip: Set up a sub-account within your savings to separate funds for specific goals like a “House Fund” or “Vacation Fund”. Starling, for example, allows you to create multiple sub-accounts with custom names.  

5. Fun Account: Enjoying Life Guilt-Free

Money isn’t just for bills and savings – it’s also for living. The Fun account is your designated fund for guilt-free splurges. 

Whether it’s a weekend getaway, a shopping spree or trying out a fancy restaurant, this account lets you treat yourself without dipping into your emergency or retirement savings.

I created my fun account while I was saving for my house deposit and it was one of the best things I did. It allowed me to work towards my goals without feeling like I had to give up everything I enjoyed. 

Set a reasonable amount each month or paycheck to go toward this fund. Treat it as a reward for your hard work and financial discipline. 

Having a separate account for fun spending helps curb impulse purchases and ensures you’re intentional about enjoying your money.  

Tip: Try setting a rule, like only using the fun account for experiences or items that bring you joy. This makes sure your splurge money is spent meaningfully. 

How to Get Started with These Accounts

Automate contributions: Set up automatic transfers to each account. Automation helps you stick to your goals and removes the temptation to overspend. 

Review Regularly: Financial needs and priorities change over time. Schedule periodic reviews of each account to ensure you’re on track and adjust as needed. 

Celebrate Your Progress: As you hit milestones, like fully funding your emergency fund or maxing out your Roth IRA, take a moment to celebrate your success. 

Final Thoughts

Having these accounts in place is like having a roadmap for financial freedom. Each account serves a unique purpose, from providing a safety net to preparing for retirement ensuring you can enjoy life along the way.

Financial freedom doesn’t happen overnight, but with these accounts, you’re building a future where money is a tool to support your dreams, not a source of stress. 

Other Posts You May Like:

The Ultimate Payday Routine

10 Smart Financial Goal Examples

10 Clever Income Generating Assets