Hi, everyone! Sorry I haven't posted much lately, but I've been reading and cheering along quietly.
No real new changes on any of our steps, although I'm cautiously optimistic that we are going to come in several hundred dollars UNDER budget this month
: (two more days until I'll know for sure) and if so, I'm totally excited to snowball that $$ into our cc debt. I've cut WAY back on our food budget this month, we've done a lot of eating from the pantry-or-freezer-type of meals, and it's really empowering to see in $$$ signs how much that is benefitting our family. So I just had to share my excitement about that.
Originally Posted by Red
Also, how do you manage funds you're savings for future expenses? Where do you keep it? Should I have an envelope for each thing, stuff like eye appointments which happen every other year, or oil changes which we need every three months? If it's in the bank, after a few months, I don't know what the heck the $$$ still in teh checking is there for, and have to look up every penny. I know I won't be able to keep up with it.
So, how do you?
Red, for stuff like that, we've been using a tip from Mary Hunt (Tightwad Gazette lady) for years that has really, really helped. I like it better than an envelope system b/c it earns you interest on your $ and you don't have to have large amounts of cash hanging around your house for long stretches of time. She calls it a "Freedom Account", I believe, and the whole idea behind it is to have a place to save up for all those things that don't come due or happen every month, but which are bound to happen eventually (home repair, auto repair, medical bills, taxes and insurance.)
We opened a secondary interest-bearing checking account at our bank (we don't pay fees on it b/c our mortgage payment comes out of it, but I'm sure there are other deals out there, too, to reduce/eliminate fees. A money-market account that has limited check-writing would work fine, too). We specifically asked that the account NOT have an ATM/check card attached to it. We do have a checkbook just for that account, though. And I can transfer money back and forth on-line between that account and our primary checking. Anyway...
Every two weeks (when DH "pays" us -- he's self-employed), I transfer a certain amount from our primary checking into that secondary checking account. That's where $ goes for our life insurance (paid 2x/yr.), homeowners insurance and property taxes (our house isn't escrowed, so we need to save up for those, paid 2x/yr.), auto repairs, medical bills, clothing, home repairs. I think those are the basic things. Obviously, you can save up for whatever you want/need. To figure out how much to put in there, I calculated our yearly insurance/tax bills or how much our deductible was for medical or how much we spend on clothing in a year, etc. and divided that number by 12. And that's how much goes in there monthly (well, divided again by 2, since we do it twice a month.)
For some things that are non-negotiable (like the insurance), it's obvious how much needs to go in. For other things, like clothing, I usually make up a figure based on what we can afford, so there's more wiggle room. For things like the medical deductible, once I get enough saved up in there to cover it, I stop funding it and put that $ on something else instead. Then, when these bills come due or the car breaks down, etc., instead of freaking out about how this is going to destroy my monthly budget, I just write a check out of this account to pay for it.
Ah, you may be thinking, but what if I have a bill for more than is in your "fund"? At least that was MY first concern with this idea. And this actually happened to us a lot when we first started and the funds were still really small, and it can still happen when things are really tight or the bill is really, really large. What you do is write a check for the amount you DO have saved up in that fund, and then you pay the rest out of your primary checking account.
That may not seem all that helpful, but I have to say, even having a 1/4 or 1/2 of the bill already saved up for has really, REALLY reduced our stress level about unexpected crises that have come up. Now we're not forced to eat beans and rice for weeks on end to afford that emergency trip to the doctor or to fix our leaking hot water heater. We argue a lot less, too, over where the $ is going to come from.
I just thought I'd throw that idea out here, in case it would benefit anyone else.