Saving to Spend
When I was first learning how to handle a budget and manage spending, one of the things that continually tripped me up were irregular expenses like car maintenance and travel. At first I didn’t budget for them at all because, honestly, I hadn’t thought about them. That strategy worked until I found out that my car needed new breaks, which blew my whole budget and sent me scrambling.
My next move was to budget a monthly amount like my other expenses, but that failed because some months I didn’t spend anything and others I spent much more, so my budget always looked out of whack.
Saving to spend
Finally I came upon Ramit Sethi’s concept of a “stupid mistakes” fund. This idea, and the whole concept of sub-savings accounts, really blew my mind. The concept is really pretty simple, but it wasn’t something that I had ever considered.
Basically, we all have expenses that are regular enough that we can count on them happening, but not regular enough that we can count on spending a set amount every month. Things like home and car maintenance fall into this category. But so do fun things like travel, date nights and gifts. The way to handle these things is to put a set amount into savings for each category every month. Then, when you have an expense that falls into one of these categories, you simply take that amount out of your savings account for that category and call it a day. You don’t have to worry about the budgeting beyond making sure you’re contributing every month. And you can see very clearly how much money you have left for a particular item and limit your spending accordingly.
This isn’t the same as an emergency fund
For the necessary expenses, like home and car maintenance, I consider these savings to be entirely separate and in addition to my emergency fund. The emergency fund is truly for emergencies, when all other resources have been used up. Car repairs and the like are expected. They are not emergencies. Having dedicated funds for these expenses helps keep my safety net in place even during a rough couple of months.
But I find this strategy to be particularly useful for the fun categories. My wife and I live in Boston but her family is in Florida and Alabama, so we travel pretty regularly to see them. We also have friends all over the country and it’s nice to be able to see them every now and then. By putting a set amount every single month into our travel savings account, it becomes much easier to decide that we want to take a trip. Rather than trying to figure out whether it fits into our budget based on our current month’s expenses, we simply look at our savings account and see if we have enough. If we do, great! We plan the trip. No guilt or worry.
Summary
Part of living a financially secure and worry-free life is knowing that you’ve planned ahead enough that you don’t have to stress about the unexpected. Taking care of these irregular expenses ahead of time means that you will have the ability to handle them without any undue stress when they come up. I consider this to be one of the most helpful budgeting practices I’ve ever learned.
