May 28, 2008

Our budget & emergency fund will really pay off in June

I've said that my best financial decision of 2007 was the creation of an Infrequent Bills Account ("IBA"), which is what I use to pay annual and semi-annual bills. To determine how much to contribute to this account each month, I added up the annual amount of each of the applicable bills and divided by twelve. Each month, I take that amount and transfer it to the IBA. If necessary, I first deduct the amount of the bill I will be paying that month.

I had forgotten that June is when four of our life insurance premiums hit. Added together, they account for the entire month's IBA contribution. In fact, I'll be taking some money out of the IBA to pay for May's car insurance bill, which I had charged to our credit card and will be paying off in June. Because of the IBA, these bills are all taken of without any stress.

Some people treat their emergency fund as untouchable except in true emergencies, such as a job loss, while others consider their emergency fund their primary savings account, to be tapped for unscheduled, unbudgeted expenses. I fall into the latter group, and I am expecting to have to tap our emergency fund in June for a couple of reasons.

First, due to a lack of foresight on my part, I allowed my three-year-old to put a small dent into a car that was parked next to us. The owner of the car insisted on exchanging insurance information, so although I think it may hurt him in the long run to file a claim on the dent, he may very well do so. I'm just glad that I don't have to worry about where the money to pay for this claim will come from (although it may very well be covered by our insurance policy, which in turn might cause our premiums to rise).

Second, like PaidTwice,* we have some unplanned medical bills coming up (nothing to worry about, though). Like PaidTwice, the amount left in our Flexible Spending Account probably won't cover the bills in their entirety. Again, I'm grateful that we have a solid emergency fund in place so that I don't have to worry about how we'll pay these bills.

The funny thing is, at the same time that I'm grateful we have the money set aside, I'm still a little frustrated that these unexpected expenses are setting us back in our quest to achieve our financial goals!

*If you don't know I've Paid for This Twice Already, I highly recommend checking it out. PaidTwice writes openly about her family's debt and how she's paying it off. Her budget accounts for every incoming penny, and she shares the real numbers each week on Tell All Tuesday. I really enjoy her frankness and accessible style of writing, and I think you will too.


paidtwice said...

Wow, what a great endorsement! Thanks!

And cheers for the infrequent bills account! :)

Peggy said...

Great post! I do the same thing for infrequent standard bills and like you said it takes away all the stress of coming up with that big money when the time comes for things like insurance or property tax!

adrienne said...

We have a fund like this that we just call our escrow fund. When we stopped escrowing our homeowner's insurance premiums, we figured out our monthly insurance costs and property taxes and just started putting that aside with each paycheck.

It was so easy and stress-reducing that we kept adding the funds for other infrequent bills to the account- auto registration fees, auto insurance, etc.. We even built in a little extra to cover increasing costs. It's great not to worry when those big bills hit the mailbox.

Anonymous said...

I do exactly what adrienne does. I have a seperate savings account that is linked to my checking account for the escrow/IFB account.

I call it the 'accrual' account. I stash funds for the property tax/insurance/fees not on a monthly cycle and also for vet expense, car repairs and tags, gifts, and the freezer meat that I buy two or three times a year (a quarter of beef at a time).

Smaller chunks of cash are MUCH easier to come up with twice a month than a single huge chunk one a year!!!