Over the Christmas break, I’ve been reading “7 Money Rules for Life“by Mary Hunt. It’s a great personal finance book that chronicles Hunt’s own struggles with money and how she eventually set up some “rules” that got her on the road to financial freedom.
One of the things I thought was unique is her idea of creating an irregular expense account that helps to offset certain expenses that aren’t in your monthly budget.
As you probably know, budgets always seem to look good on paper. It’s when you start applying life to that budget that it really tends to take shape. I mean, how many of us realistically plan for Christmas gifts every year? The impromptu trip to grandma’s? Or replacing tires on the old jalopy? Or… you get the picture.
In the past, I generally have taken money from my emergency savings to fund some of these life events. Sure, some qualify for “emergency” status – but how nice would it be to have another fund set aside to finance these inevitable occurrences? More of a working fund – if you will – that can get used every month.
So, here’s some of Hunt’s suggestions to getting an irregular expense account set up that will free you up from living paycheck to paycheck:
- Take an inventory. If you’ve already been tracking your expenses in the past year or so – you’re going to have an easier time in getting this fund started. The first step is to find out what things you’ll be spending money on in the coming year that you’ll need to prepare in advance for. A look back at last year’s budget will give you some ideas to add to your list. If you don’t have any history recorded – you can do an 5-10 minute overview of the year ahead. Among the items you may want to include: vacations, birthdays (special occasions), taxes, vet, Christmas (as stated), school shopping, golf season (if you’re into golf like me).
- Estimate irregular expense costs. Now that you’ve got a list together – write down what you think each is likely going to cost you this year. You don’t have to be precise. And, it’s probably best to lean on the high side as far as estimating goes. When you have your costs together – add all the figures together and then divide by 12. This is the amount you’ll need to save (each month) to prepare for the odd expenses.
- Setup an extra savings account at your bank and automate. I tend to think the best way to make yourself save money is by deducting it right away from your paycheck. That way you don’t see it and you don’t have to go through the emotional roller coaster of putting money aside every month. Also, have this account easily accessible to your checking account. This way, you can transfer funds back and forth as needed.
- Relax and worry less!
I’m anxious to implement this into our finances in 2013. Do you already have something similar set up?