Dec 7, 2007

My best financial move this year: The Infrequent Bills Account

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?


Anonymous said...

Thanks for the suggestion! I'm looking into to doing the same thing right now.

In the past I've always felt since we had so little in savings it wasn't worth it. I'm beginning to reconsider it.

What do you think?

Becky said...

I think it's a good idea to have this "big bills" account, no matter what the status of your other savings. Every little bit helps!
My best financial move this year was to get married. We sold my house (praise God) and I moved into my husband's house. Combined living expenses is awesome!

Anonymous said...

"...Cathy at Chief Family Officer wrote about her best financial move of the year: An Infrequent Bills Account. I think that this is a great idea and plan to pitch it to my fiancé at our First Annual State of the Union Financial Summit that is slated for the first week of January..."

ChiefFamilyOfficer said...

Tally Girl - I agree with Becky, I think this is a good idea no matter what. You might not have enough for a liquid CD, but the basic idea of having a separate account to hold money for the big but irregular bills is very sound. I wish I'd done it long, long ago. Good luck! (And sorry for the delay in getting back to you - things have been rather crazy around here!)

Anonymous said...

I too started the same strategy this year, also very happy with it. I like to spread any known (semi-)annual expense across 12 months. Here are some suggestions for annual expenses that you may want to save for, outside of taxes and insurance:

- vacation
- car maintenance
- gifts (Christmas, Bdays)
- club membership fees
- home maintenance (terminix, etc.)

Anonymous said...

I too have recently discovered this technique and I already think it is a lifesaver. I call it my Freedom Fund and I think it's going to work wonders.

I too, like you, believe that your Emergency Fund shouldn't be touched in the situations where you know a bill is coming but out of the regular cycle. This new fund is already invaluable to me.

Anonymous said...

Step 2 is to trick yourself into saving more. You will notice that you can elect to pay your car insurance bill monthly for a "minimal" fee; i.e. instead of paying $1,200 a year, you can pay $105 monthly, which comes up to $60 more yearly. Well, I do send $105 monthly to my "Savings for Infrequent Bills Account", pay the $1,2000 yearly out of the savings when the bill comes due, and I keep $60 + interest. Tah dah!

Carte di credito said...

Tracking and categorizing expenses can be very convenient through one credit card statement. Keeping tabs on your credit expenses weekly through your banks website will help you manage your budget. As always you don't want to spend beyond your means and keep making those regular repayments.