Jul 18 2008

Saving for fun things–not just emergencies

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.

We have:

:: 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?



13 Responses to “Saving for fun things–not just emergencies”

  1. As a Mother of two, I would highly suggest creating a savings account for baby expenses. You never know what will come up with a baby and when a baby is born you realize that you actually don’t have everything you need.

    I wish we had started saving when I was pregnant with our first, we quickly learned you always need money on hand with kids because there is always an unexpected expense.

  2. Good to know, Vanessa!

    We use a similar system. We just have one ING savings account. Then, in an Excel spreadsheet, I have subaccounts for how we are dividing that one ING account out. Our current subaccounts are:

    -General/Emergency Fund
    -Home Improvement Projects
    -Vacations
    -Property Taxes
    -Insurance (home/auto)
    -Tires (both of our cars will need new tires before winter)
    -Gifts

    We also have a “New Car Fund” invested in mutual funds at our brokerage.

    Maybe I should get started on a baby fund… :)

  3. We keep a budget that is kinda like having “virtual” envelopes. We have an envelope for gifts so I look a month or two ahead to see who’s birthday I’ll need to buy cards/gifts for and then we can fund that envelope accordingly. We also budget $20 every month towards Christmas gifts, so that by the time Christmas roles around we have some money to spend (and we have money set aside to buy gifts throughout the year as I find deals). So, I think those are GREAT small savings to start – even if you don’t actually open a savings account – just putting money into envelopes helps!

    Laura’s last blog post..Lynn Comes to Dallas

  4. Wow, awesome to be almost finished with the EF goal! Seems like you’ve got a good next phase plan. Thanks for mentioning us!

  5. We’re really focusing on just putting some $$ in savings and then we’ll work on things for individual items.
    On another note, I did my first CVS savings trip and used a ton of ECB’s I had accumulated. I got $68 worth of stuff for $18!! Wow! Such a rush! I need to work on spending the ECB’s on stuff that will give me more ECB’s back. Anyway, thanks for the encouragement! The CVS girl was really nice about it and didn’t give me any trouble at all.

  6. We have been doing this for years. We put $500 into the account. Then I figure how much needs to go where. I have set amounts for each category, but those do change occassionally or frequently in the beginning. Good luck!

  7. We worked it this way (after awhile I could see us having 12 savings accounts so the last two became individual catch-alls)

    A – Emergency Fund
    B – Periodic Bills
    C – Car Fund
    D – Christmas, B-days, other gifts/trips
    E – Husband Fund
    F – Wife’s Fund

    So my spouse wants an air compressor and he gets $40 a month for whatever. If he doesn’t spend it on whatever we put it in his fund. I get $40 too and I don’t know what I want yet and but its usually expensive so I’ve been socking away so I won’t have to deal with delayed gratification whenever a thought strikes. I’m using it for my b-day this week and getting me some new bedding.

  8. I used to have several different savings accounts but I’ve since narrowed it down to 2. I have my Emergency Fund in one account and then I have a seperate “flexible” savings account for all those other unexpected expenses.

  9. Congratulations with your emergency fund. I am a student and I literally do not have the income to start building an emergency fund. However once I have finished college (in 5 months!! woo) then I will begin to build my emergency fund.

    Ryan McLean’s last blog post..Smarter Wealth – Not Just Another Financial Blog

  10. I cannot emphasize how important it is to have an emergency fund……….
    Our beloved lil’ doggie stuck her head under one too many fences and was dragged under by the snout by another dog. Needless to say her top muzzle was completely broken.
    Aside from the stress of this situation at least we didn’t have to worry about where the money would come from…………for the necessary operation.
    Therefore, the decision to go through with the surgery was made easier because of our emergency funds.

  11. What a great problem to have. I hope you inspire everyone to completely fund their emergency fund, its too easy to overlook.

    Frank’s last blog post..The 8 Worst Habits for Saving Money

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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