Wednesday, April 23, 2008

A new concept... wow

I've always wondered how people plan for the small expenses that pop up from month to month (but not every month) as well as the bigger yearly expenses.

- Every 8 weeks I pay $20 for The Grocery Game. We've saved thousands of dollars by using this website so $20 is more than worth it.
- Every 3 months I pay just over $22 for a subscription to My husband and mother and I all play computer games to unwind. (Yes, our time could be used more productively.) This allows us full access to the full versions of all the games on the site. It works out to about $3/month "entertainment" for the each of us.
- Every year we have a bill at our accountant's. (As business owners we choose a professional.)
- Our car insurance is billed oddly (we may change this) so we have one month with no payment and the first month with a larger payment.

Anyway... these are just some examples. A freedom savings account breaks down each expense in the following manner:

Amount of expense / months until expense occurs

So my birthday, which I'd like to budget $150 for, is in August. This would be 150/3 or $50 a month I'd need to save between now and then. At that point it would be $150/12.

The $20 would be $10 a month.

See where this is going?

Instead of "trying" to keep enough money in the accounts to cover these random expenses we plan ahead.

Some people don't like this and would rather keep the extra money in months without these expenses an interest-bearing account and transfer it later. I'm debating. I think I'm going to budget for the amount of my FSA and then transfer it at the end of the month to my savings account that I just opened with ING. This way I'm both planning for it AND I'm earning interest on the money. Make sense?

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