Mary Hunt's Freedom Account (from the Complete Cheapskate)...anyone do?

[canuckgal]

I don't know how many of you have read this book. I have an older edition, not sure if the title has changed, but her website is now called Debt Free Living.

I am wondering about the Freedom Account she describes. This is not the 3-6 months of expenses BTW, but saving for things like car repair, auto deductible, clothes, etc. Ours consists of a "home repair" fund (things like buying paint, new bedding, etc), car repair (like oil changes), and clothes, gift fund, and homeschool expenses.

I am wondering how to "cap" it though. Say I allocate 1000.00 per year to the auto repair fund. Once I have that, according to the book you don't keep contributing to it...it is NOT meant to grow indefinitely. So, the 83.00 per month I contribute...what do I do with that? Allocate it elsewhere? And, then if I make a withdrawal for a minor repair or oil change...just re-allocate it back to the autofund?

I guess it's a "cash-flow management" sort of question. Wondering if anyone familiar with this concept can help me out.

[shepremiers]

I don't know about the website or book, but I would think you only use the fund if its an emergency and you can't afford it. Otherwise you just pay from you checking acct or whatever.

[Kyamo]

I don't know about this book either, but I disagree with shepremiers. I think you are talking about a sinking fund not an emergency fund.

If you are estimating that you spend $1000 per year on car repair, then you contribute $83 per month. At the end of the year, if your estimate was correct and you spent $1000, and you also contributed $1000 to the fund, then you have broken even, and the fund won't keep growing. If you find that your estimate was incorrect and too high, so your fund is growing too much, then I would revise the estimate (example: change estimate to 800/yr, change monthly contribution to $67). Likewise if your estimate was too small and you didn't end up with enough money for all the repairs, then increase the monthly contribution. This way you don't stop and start all the time, which makes it easier to budget.

[Denvergirlie]

Mary's Freedom account is the same thing as Dave Ramsey's sinking funds. Same concept just called different things.

You save money monthly for known expenses that will be coming up. Car manintance, household repairs, property taxes (if you don't do escrow) etc, etc.

Yes, you put in set amounts monthly, when it hits your capped amount, then use those allocated funds into a different savings account or whatever. When you use those funds, yes then you refill those accounts.

In most people's lives, those funds will never reallt be capped as repairs need to happen, property taxes are paid yearly, etc, etc.

That being said, we don't do these sinking funds because we can cash flow most of these things that pop up. However, we are renters, so have a large portion of that just doesn't apply.

Hope that helps some.

[McFeelings]

I've read her book and we do use the Freedom Fund. Basically I do this on an annual basis each September (we're on an academic year). I review last year's expenses meant to be covered by the FF, adjust for inflation or changes of conditions and add them up to come up with the big number of what needs to be paid out of the FF for the next 12 months. I subtract whatever balance is in the FF account and divide the remainder by 12 to arrive at the monthly installments.

If somewhere along the year we have an expense that is WAY above the original estimate, I make a calculation on how much more we need to add to the FF each month to make it to the end of the year.

On the whole, the FF is a rough cash flow tool and not as exact as a budget.

[mightymoo]

I do this, though I've never read either Mary or Dave. It just made sense to me to do it this way.

I am constantly adjusting what I put into the funds, I do yearly budgets to give me an idea, but if I find that a fund is building up and not getting used, I start contributing less to it and maybe bump up other funds. I have accounts for home and car maintenance, but also vacation, christmas, etc - so if I think car maintenance is getting more than it needs I redirect it into something else like vacation savings.

[Crunchy*VT*Mom]

I have a freedom fund account from reading Mary Hunt's book, but I must have misunderstood...

I thought this account is for FIXED expenses that you know will come up -- property taxes, insurance premiums, water bills.

Bills that occur annually but wouldn't show up in a monthly budget.

Car repairs and home repairs would fall into an emergency account. Because there is no way to estimate how much those are going to cost.

[Denvergirlie]

Originally Posted by Crunchy*VT*Mom

I have a freedom fund account from reading Mary Hunt's book, but I must have misunderstood...

I thought this account is for FIXED expenses that you know will come up -- property taxes, insurance premiums, water bills.

Bills that occur annually but wouldn't show up in a monthly budget.

Car repairs and home repairs would fall into an emergency account. Because there is no way to estimate how much those are going to cost.

Yes and no.. ... but car & home repairs will happen..... they will eventaully happen, so save for them now. You don't know the fixed amount, but you can guess, what on average have you spent in past years?

If nothing else you know you will need oil changes. Set a yearly amount for $800 or whatever that number is and then save that as well into the freedom account. You can divert funds from that category when it hits $800, but the thought is to sink for these things.
You can always re-evaluate mid year or yearly.

A car repair is needing new tires or brakes, a car emergency is a flying rock breaking your window, or a freak hail storm.
You can plan for the repair, thus sink those funds. But your emergency fund is different from this.

Or at least that is the common thought process on the two and how they are different.

[IrishGirl76]

Hi there,

I use a similar fund (after reading Mary Hunt!). I've struggled with this notion as well (what to do when the cap is reached), but to be honest, I don't think I will ever reach those caps! The car is always needing some kind of maintenance, so I just figure out what I think it will cost us each year, and contribute that amount per month. It's just a continuous cycle, as we use it and build it back up. Same with clothes. I set aside $100/month for clothing (for a family of 5), and it builds up a little until someone needs clothes, and then it's depleted a little. As long as your estimate is close, it should never reach its cap! If I feel like I have over-allocated to a fund, I'll take some out and move it somewhere else, and then reduce my future contributions (but it's usually the other way around - I haven't allocated quite enough and have to find the money somewhere else). I don't know if it makes any difference but our Freedom Fund is basically a glorified envelope system. We use a zero-based budget, and EVERYTHING is accounted for and placed in the Freedom Fund. Even things like groceries, household, personal care, etc. We have it set up in Quicken, use our credit card for all purchases, and deduct from the appropriate category. EVERY purchase must be deducted from a category. It's like an electronic envelope system.

The only categories that I think we should maintain a minimum balance in are categories like home repair and car repair. Maybe keep a minimum balance that would cover the most major expense that could occur in that category, but then keep contributing above and beyond that to cover routine maintenance.

Also, regarding the Emergency Fund, I view that as a completely separate entity. The Emergency Fund is ONLY for loss of income. Everything else is anticipated and part of the Freedom Fund.

HTH!

[mightymoo]

FWIW, I consider my car fund to be both car repairs and new car, so I put in more than I think we'll need to pay for car repairs and over time it accumulates with the intention that when we decide to get a new car, the fund will have money in it for that.

[AuntNi]

Tina, we've been doing the Freedom Account for 2 1/2 years. It is an AMAZING tool! It just never occurred to us before, but it has made the biggest difference in our finances.

We keep ours in an ING Electric Orange account. I'm laughing hysterically at the thought of any sub-account being fully funded - I wish! Maybe we're just estimating our expenses too low, but we're contributing all we can afford right now.

If you'd like to see my Excel file where I keep track of all our sub-categories, PM me.

[nym]

Wow, Ive kinda only started to think about stuff like this. We need new tires on the truck but its not something I can find money for. Every month we are operating at even. We just started putting money away in an emergency fund, and trying to get some debts paid down.
I wish we could just find a little bit more money to put away for things like car repairs etc. We never buy clothes, I couldnt imagine putting away 100 a month for clothes!

[lmonter]

We did the secondary checking account for about two years while we were getting our bearings. We did the paycheck-to-paycheck thing quite well, so if there was money in our main checking account, our habit was to think of it as fair game for whatever. Took some time to revamp that style of thinking.

Last fall we switched our checking account to a more stable bank, and didn't bother with the secondary account thing anymore. We've gotten better about our spending, and much better about letting our savings for a rainy day and irregular-but-expected expenses.

As for anything needing to be "capped" in the freedom account... something would always come up... The u-joint on the truck fell out, a car needed new tires, life/car insurance would come due every 6-12 months, the kids would need clothes, or Christmas would come. So we never really ran into having to cap it off. But maybe it's just that we have a median budget compared to some folks - we aren't rich, but we don't come close to qualifying for food stamps (if that makes sense). So it's not like we'd be able to set aside $200/mo for gifts or $500/mo for home repairs (in actuality, it was $50/mo for gifts and $100/mo for home repair is what the plan was - since you know those are going to happen whether you want them to or not).