Edited by HeatherAtHome - 6/14/11 at 8:58am
Car maintenance (oil changes, tuneups, tires)
clothing, entertainment, hair cuts, gifts, travel, etc.? Or does that come out of your $125 month misc.?
I'm undecided on how I want to budget in our car repairs/maintenance. Because it's so variable, I think I want to use our emergency fund, then replace it with extra bits of income (DH's overtime etc)
Pretty much. We are so frugal/boring that it's almost embarrassing. We entertain ourselves. We're both pretty much set for clothes. We buy some pieces new and fill in the rest with thrift shop finds. DH wears a uniform at work (and they clean it too!) and I stay home so neither of us need much for clothes.
In theory, my misc cash would cover the occasional coffee/treat out, maybe a book, my yearly library fee, any little thing for the home (packet of seeds, dishcloths etc). DH's misc cash would cover his ride to work, the occasional coffee, the occasional lunch (I normally cook something though) and any little treat he wants. His is higher because of work related expenses.
For home stuff, we go shopping every 3-4 mths and spend 50-250 at a time, depending on what we need, what's on sale, if we have the money etc.
Gifts are a big one. I almost rather take this out of savings/emergency fund and repay with DH's OT or other misc income seeing the amount we'd spend really depends on how much extra money we have laying around.
I guess I'm thinking of using the emergency fund as a credit card. Use it for something beyond the monthly budget but hopefully pay it back when we have more money! I feel sort of bad about that seeing I wanted everything budgeted in.
One good thing is that our hydro bill should go WAY down once we've done the extra insulating work. During summer we pay $40/mth, during winter it's more like $200-300.
Although it might work, I think it is a bad idea to use a main emergency fund for anything except actual emergencies, like if someone loses a job. If you use the emergency fund like a credit card, and then do have an actual emergency, you could be in big trouble. Figure out how much you need in a real emergency fund (at least to start, with the intent of building it up later), put it somewhere safe but accessible, and don't touch.
Then set up another savings account for variable expenses like gifts, car maintenance, etc.
Without knowing how much your dh earns in overtime, it's hard to see how you are doing. Without the OT, the income vs expenses you show just about zero out. Is OT a regular thing, or is there a possibility that the company will stop letting people work OT?
The concept you are looking for is called "sinking funds" and they are separate from the emergency fund.
While you certainly can take variable expenses out of the emergency fund if you so choose (and you would already be able to pat yourself on the back for saving up and relying on cash), there are drawbacks to it.
One drawback is that you'll never really know how much you "really" have available to you. How would you decide if you could budget a certain amount for holiday gifts, for example. How would you know if you were in good shape.
Another is that it can be disheartening on months when you withdraw more than you put in. But if you consider them sinking funds, you know the money was there to be spent. It's not truly savings and you are permitted to withdraw.
Another is that if you actually need emergency funds, you won't know how much you have or how long it will last, because you'll have to keep in mind that it's mixed in with other expenses.
What I do is I have a list of sinking fund categories. I keep it in an Excel spreadsheet, but it could easily be on paper, or in a text document, in a note function on a handheld device, etc. I'll share my list with you (to help you brainstorm) in a minute.
It's separate from the emergency fund. Or, if you prefer, you can look at the emergency fund as just another category in your sinking funds (and handle it the same way) - the only difference being that your goal is to NOT spend it, and your rules about tapping into it are stricter. Personally, I have two savings account, one for the emergency fund and the other for the sinking funds. But you could combine them into one account, or you could have separate accounts for each sinking fund, or some other combination. It doesn't matter, the main point is to have a method of tracking them (paper, spreadsheet, whatever).
There are infinite ways you could approach the decision of how much to put in each, and you can figure out what you are most comfortable with. Some categories you might want to fund first (bills you know you must pay, like insurance) and others only get leftovers if any (like gifts). Or maybe you have a fixed amount for each category and you go down in priority order, and if there's anything left over it goes in the emergency fund. I personally have a setup where a percentage of my contribution goes into each bucket - I just like knowing I put something into everything. Keep in mind that if you know a life insurance bill is $450 annually, then you can divide it by 12 to know you need to put in $37.50 each month; or quarterly taxes get divided by 3, etc.
I just like this method because I can feel very secure in knowing exactly what I have. It's difficult to look at a bank account of, say, $2,500 and know whether I "really" have the money to cover $600 in brake work right now. Of course some things I have to pay whether or not I technically have it all saved up, but I just really like knowing "hey, the brake work was $600 and we already had $300 of that saved up, so we only took a hit for half that amount, not too bad" for example. Or with something like Gifts, I really don't want to spend more than I actually have. And then I can keep track of my emergency fund, and when I have 3-6 months of expenses (I'm not there yet) I can feel like I accomplished something and can mentally feel like that's really there for me.
Here's my list of sinking fund categories:
Medical (to cover deductible and maybe copays)
Travel (this could be vacation; for me it's my annual visit to my parents)
Gifts (Christmas, birthday, anything)
Auto repair (covers new tires, tuneup, brake work, anything)
Pharmacy (for most people this could just be part of regular monthly budget but we pay for 3 months at a time and order online, so I like to have it saved it)
Heating fuel (some people pay a level monthly amount, but we don't)
Home repair (sink faucet broke? this will pay for it. ultimately, I would love this to someday even cover the cost of a new roof)
Home upgrade (this is the optional stuff - paint, new curtains, for people with more money this could be a fund to save up for kitchen remodel or whatever)
New car (ours is paid off but one day many many many years from now - knock on wood - we may need a new (used) one. ideally would like to pay in cash, but at least the downpayment would be there)
Car excise tax
Trash (we have to pay for a $50 sticker every 6 months or something like that)
And we also have one I call "bulk" for lack of a better term... it just helps us take advantage of sales and stockpile certain necessities. So if flouride-free toothpaste is on sale, we can buy 5 tubes instead of just one. Stuff like that.
I don't have property tax or insurance on my list because it's in our mortgage escrow, but consider that if yours isn't. Also if your auto insurance is an annual premium, that's another one.
If my list seems too long or intimidating to you, consider just having broader categories than I do. Medical could cover dental and pharmacy for example. And you could have just a Home category, covering repair, heating, upgrades, tax, etc. I'm just really anal and love having everything nailed down to the penny. But mine is just an example.
Wow, seashells, thanks for all the valuable information.
ITA with seashells point about not knowing how much emergency fund you *really* have if you are constantly dipping into it. While most of the things she listed we just deal with out of our checking account, the big ones for us we have made different accounts for at ING.
We used to have all our "extra/emergency" money in one account at ING. But it was hard for me to tell how many months of savings I *really* had when I knew that we would be using some of that money for household, or _____
We have our emergency money in ING. Placed 4 months of expenses in an account titled "Emergency Fund." That is ONLY for emergencies--- job loss, major medical, something we CANNOT predict. If we can predict it (car repairs, insurance, things like that) it has a different account. Then we have a Household Fund (major repairs and/or expenses like replacing an appliance) and an Entertainment Fund (major vacations). Lastly we have "Rolling Savings" which is for those larger things that come up occasionally but we know they will (car insurance and the like).
As for the cigarettes--- I know you can't tell your DH to quit. But you can tell him he is spending almost 10% of your monthly budget on something that is not only just for him, but actually is harmful for him and your family. Would you take the same view of him spending $200/month on strippers? What if he didn't want to quit going to the strip club? Yes, it's an addiction, but it could possibly be an addiction that causes financial unrest within your family.
You've had some great advice so far, but I am wondering about your groceries. They seem super low to me as a fellow Canada-dweller.
So much good stuff here! Thank you!
I can't get the multi quote to work!
Ok, I wanted to schedule in every dollar. If things are tight, we can scale back on the savings and we don't need to add $2500/year on the mortgage. That would be icing on the cake and would only be done each year if we're doing fine and would still have money left in the bank afterwards for emergencies. OT is variable but it does add a significant amount to DH's pay per year. Summer and fall are busier for them, plus it turns out they need to hire a couple extra people in his section which always takes a while. The company is expanding and DH is good at his job, so I'm not really worried about him losing it. *knock on wood*
Yes! Groceries can be so expensive here! It's just the two of us, no kids. I've tracked our spending a couple months at a time here and there and have found that as long as we lay off the snack/processed foods we can stick to the $350/mth. I planted a huge garden last year and was able to put away a bunch of veggies, had enough potatoes to last us until beginning of Feb and pasta sauce just ran out. I hope to do even better this summer! I love my garden! It's a free gym membership, therapy and meditation retreat all rolled up in one AND it saves us money on food! It's magical!
And of course I cook from scratch, use meat as flavouring, stock up when things are on sale and all those other frugal things floating around this forum.
Seashells, thank you! :)
I'm realizing that I don't want to think of an emergency fund as X months of living expenses. We feel confident with DH's job, he's never had a hard time finding work, and because of how much taxes etc are taken out of his pay, what he'd receive on unemployment isn't that much less than his net pay now. I wouldn't feel as secure in some parts of the US, but in our little corner of Canada I feel ok. I prefer instead to think of our emergency fund as being there to cover the big things that come up; unexpected car repairs, dental work (we only pay 10% anyways) etc. Obvisously the bigger our fund, the further it would go in times of need so we'd try to keep it up but I don't want the pressure of thinking we need to keep X amount in it.
We're good to go on medical & dental. DH has good insurance through work, and both of us are fairly healthy *knock on wood again!*
To be honest, we're not into traveling. Someday maybe, but for now all our extra time and attention go into the house.
All the home repair stuff would come out of the lump sum we'll get with refinancing.
But yes, sinking funds. We need to figure out WHERE to put the lump sum so that it's accessible when we need it but not too readily available and won't get mixed up with daily spending. Here's the thing, we have a couple accounts. At our "regular" bank, I have a chequing with $1000 line of credit (thinking of removing that). All that comes out of my account is an automatic payment of home insurance. Other than that it's not used but is there so that I still have a financial identity. DH has a chequing acct with me added as a user. DH's pay is deposited into this and all our bills come out of it. It also has a larger line of credit on it which we were using for renovations. Then DH has a Tax Free Savings Account which can have up to $15000 this year (I believe) but is currently empty. I will open a TFSA and because it's my first year will only be able to have $5000 in it. And DH just opened a Thrive account with ING.
We're wondering if THRIVE will be good for us. It says no fees on THEIR end, but we might end up using other bank machines with it (like Desjardins, RBC etc) and they would charge us fees. We're going to test it out around town at our daily stops to see. If it did, we would stick with our regular bank and keep a min amount of $2000 in chequing so we don't pay transaction fees. I wonder if we could "lock in" that $2000?
Oh, and we agreed that our misc spending, the cigarettes and groceries will be cash only so once it's done for the month, no more money. If there's some extra it would roll over to the next month. So basically we wouldn't use our debit cards unless it was for reno materials, car repairs etc. In which case fees wouldn't really matter.....
I feel like we have more than just budget issues! I need to do some more thinking.
Great news! I did some research last night and figured out where it makes the most sense to put our money depending on levels of accessibility. This thread has been a big help and given me a lot to think about so thank you. To be honest, I was (still am) sort of freaked about having so much money available to us.