A few months ago, I wrote about moving our emergency fund into a liquid CD account at our brick and mortar bank. When we made the switch, I decided to keep our money market account, which is much of the funds had been, and use it as a holding place for money that would eventually be needed to pay infrequent bills, like insurance bills and property taxes. It’s proven to be my best financial move this year.
The Past: Dipping into the emergency fund
In the past, I transferred a set amount into savings each month, and figured what was left in the account would cover the infrequent bills. But somehow we always seemed to spend that money, even when our spending stayed within budget – which, admittedly, it often didn’t. So when the big bills hit, I would have to dip into our emergency fund to pay them. And it didn’t help that several of the big bills hit at this time of year, just in time to add to the bills for holiday gifts.
The Present: An intact emergency fund
I was thrilled last week when I paid a couple of the big bills and discovered that we won’t have to touch the emergency fund this year. I simply made a transfer from the money market account to our checking account, and now there’s enough to cover the bills that will hit at the end of the month. Our emergency fund is intact and actually growing, since I was able to make the usual monthly deposit.
The Future: A bigger monthly deposit to the MMA
Starting in January, I will be increasing the amount we transfer into our money market account each month (and I plan to increase the amount each year). The property taxes and some of the insurance bills go up each year, so the increased transfer amount is intended to cover that difference. It will also cover the increased car insurance when we buy a new car, although I don’t expect that to happen until close to the end of the year.
The bottom line: I wish I had created an infrequent bills account several years ago when I first learned of the idea. We would probably be $5,000 to $10,000 richer, just from not dipping into our emergency fund.
Note: When we made the switch to the liquid CD, I left some money in the money market to meet the minimum balance to avoid a monthly fee plus a little extra as “seed money,” since I knew the big bills were coming at the end of the year and we probably wouldn’t save quite enough by year’s end to cover them. I am using of that seed money this month to pay for the big bills, and now feel as though I’m starting from scratch, as it were. In 2008, the net balance on the money market account should be slightly on the plus side, since I am trying to be conservative in my estimated expenses.
What was your best financial move this year?