Shane and I are excited that we almost have our six-month emergency fund in place. We anticipate it will be complete sometime in August, and right now we’re trying to decide how we’ll divert our extra money once we’re no longer putting it into emergency savings.
We found that focusing our money on one goal helped us stay on target and reach it faster than if we were saving for other things simultaneously.
But soon, we’ll want to start saving for other things. We’ll create a few more sub accounts within ING Direct to facilitate this. I suppose this method is like using an “envelope system” but electronically instead of with cash in physical envelopes.
:: Emergency savings
:: Insurance savings — Each month, I deposit 1/6 of our car insurance premium and 1/12 of our renters insurance premium into this account. The money grows a little bit of interest and when it’s time to pay the policy, we can pay it in full without having a huge impact on our monthly budget. Plus, paying in full usually means avoiding installment fees–even more savings!
New accounts I’m considering:
:: Baby savings fund — We’ll work to build up this account within the next few months. Money will be used to buy baby furniture, clothes, diapers, and miscellaneous baby-related things that I cannot comprehend right now, to be used during the first year.
:: Travel — We love vacations! We probably won’t be going on a real vacation for awhile, but we will be taking a road trip or two back to Indiana. It’ll be great to have money set aside to go on a cruise at some point within the next couple of years.
:: Car — We do need to pay off our car loan, but in the interest of having as much liquid cash as we can for the next few months, we’re going to divert extra car payments into this car fund. It can be used to pay the car off early or to buy a second car, if we decide that’s in our best interest.
:: Misc. Household — Funds can be used to buy clothes, furniture, general household items, etc.
:: Gifts — Funds would be for birthday presents, wedding gifts, Christmas, and any other gift-giving occasion.
:: House down payment — It’s going to take us awhile to save up a good 10-20 percent for a down payment, but each down payment had to start sometime!
We haven’t decided how much money we want to put into each account each month. Maybe we’ll set a minimum amount we want to contribute each month, and each month decide where to put extra funds. If our household fund gets high but we aren’t really buying anything with it, we might start putting new contributions into other categories, for example. The point is to be sort of flexible with it, while still focused enough to save for these expenses.
I hope this system helps us save for different goals, but I also think it will give me permission to spend money. I don’t mind spending money on things like groceries or gas. It’s those other things — clothes, vacations, a new kitchen gadget — that give me trouble. I’ve gotten so used to saving every last bit of money that it’s kind of hard to say, “Ya know what? It’s OK to buy things you need and want. You budgeted for it and you can afford it. Now go buy it!”
I think having money set aside for specific goals will help me avoid becoming miserly, while still allowing me to save money and not fritter it away on junk.
Over at Adventures in Moneyland, they’re doing similar things. Right now, they’re working hard to pay off debt, but at the same time, they’ve realized that you’ve got to set aside some money to pay for upcoming planned expenses, such as their HOA fees, gifts, and clothes. Even if you’re paying down debt, I think it’s good to have some savings set aside for things like this so that when you do make those payments, you aren’t putting yourself into a bind.
What about you? How do you pay for those expected but irregular expenses? Do you use savings sub accounts? A cash envelope system? Do you have a cushion built up in your checking account to cover these things?