My Yearly Savings

I’ve talked about this before on my blog, probably ad nauseum for some of my more faithful readers, but I am a strong believer in what I call my “yearly savings”.

The idea struck me when I was in graduate school trying to live on a VERY tight budget. I realized the times when I was really in trouble financially were months when I had a large expense on top of paycheck to paycheck living. Things like buying contacts. Christmas presents. Vacations. Car maintenance. Car registration. Professional affiliation dues.

All of them were things I knew I would have to pay every year. But having a $100 car registration due on top of a tight salary left me resorting to the credit card towards the end of the month just to pay for everything.

My solution was pretty simple: Add up the amount I want to spend on these things a year. Divide by 12. Put this amount in to a savings account each month. Pull from this account to pay for the expenses. If the amount goes over the amount that I’ve allocated pay for the remainder from my regular checking account – which is much easier to manage!

(In reality, I just pay for the expense with my checking account and then transfer funds after the fact or before, depending on the scenario.)

My categories are as follow:

Car Maintenance Fund – $480/year – $40/month – I currently have $0 remaining to spend

Christmas – $480/year – $40/month – I currently have $417 remaining to spend

Car registration – $120/year – $10/month – I currently have $17 remaining to spend

Pet vaccinations – $240/year – $20/month – I currently have $0 remaining to spend

Haircut/beautification – $180/year – $15/month – I currently have  $30 remaining to spend

Health fund – $240/year – $20/month – I currently have $165 remaining to spend

Vacation fund – $480/year – $40/month – I currently have $230 remaining to spend

Professional affiliation dues – $60/year – $5/month – I currently have $0 remaining to spend

For the next year I’ll also need to save up monthly for car insurance payments and renters insurance as well (I’m switching to paying annually/bi-annually rather than monthly to save a few extra bucks). I’ve already started saving this amount so it shouldn’t be an issue to pay when the time comes ($50/month for both).

Now here is the delimna. I plan this on a yearly basis. So I can start at $0 on January 1st and still be solvent for the entire year (assuming the car doesn’t need all its repairs at once or more than one or two things don’t hit at the same time). I know Christmas won’t happen till the end of the year. I know that my professional dues aren’t due until June. My car registration the same month. The pet vaccinations will be in February. It is a little bit of a gamble the first few months, but I do have an E-fund to pull from as back up if I don’t have enough in my yearly account to pay the difference and then I just credit the E-fund with the amount borrowed over the next few pay checks.

I will have money left over come December as I won’t have used all of the car registration, vacation fund, or health fund. This will be around $400. I have three options for this money:

1. Keep it in the yearly savings account as a “buffer” if multiple expenses happen at once at the beginning of the year.

2. Put this money in to the E-fund at the beginning of the year and start from $0 for 2011 in the yearly savings.

3. Put this money on the credit card and start from $0 for 2011 in the yearly savings.

I’m not quite sure which option I want to pick. I like #1 and #2 the best because it keeps the money geared towards its original intention: savings. Part of me wants to just keep the money where it is at just because it is easier that way. But from a straight budgeting/math point of view it is easier to “wipe the slate clean” in January and start from $0. It makes reconciling my account balance with my Excel file so much easier.

What to do… what to do?

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14 Responses to My Yearly Savings

  1. findingserenity2010 says:

    That’s extremely smart, my friend. And it makes sense in the long run. People who think short-term (as in, most people) won’t think anything of $5 or $20 put aside every month, but imagine the benefits of having that money when those yearly bills come around? If more people prepared for expenses like this, we wouldn’t be in financial messes. And by we, I mean me.

    It’s hard to decide what to do with extra money. I see how having a clean slate can make the math easier, certainly. Having money left in my bank account at the end of the month sometimes throws mine off. Personally, I’ve been going back and forth between paying off debt and saving, which isn’t all that smart. I’m back in the saving money mindset. But for you, perhaps you could compromise and save half of that extra money and put the other half towards debt?

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  3. I would put it toward my credit card if I had $400 extra. However, I am not smart about these yearly expenses, so you probably want to take my advice with a grain of salt. 🙂

  4. Airam says:

    I would put $200 towards debt (especially in light of your last posts about feeling like it takes forever to be debt free) $100 towards your efund and leave $100 as a buffer in your annual savings account – it is what it was meant for anyway.

    And BTW how on earth do you spend only $15/month on haircuts/beautification? What do you include in this category?

  5. LBC Teacher says:

    I agree with Airam…give yourself a bump in the debt category, but leave a little cushion and add a little to your e-fund to get it to that Dave Ramsey approved $1,000. Because Dave Ramsey is like Santa…he’s always watching.

    Just kidding. That would be creepy.

  6. LindyMint says:

    I was going to vote for the buffer plan, but I like the suggestions above to go half & half (or whatever variation makes sense). Smart readers you have here. :0)

  7. Jerry says:

    Your health fund is quite low so I’m assuming you already have insurance. That’s a blessing with so many that are without it. Hope the mulling over leads to the right decision for you!

    • SS4BC says:

      Yes, I have insurance through my work. So my health fund just covers co-pays essentially. Also, eye care since I don’t have any vision insurance.

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  9. Meg says:

    What if you leave the equivalent of one month’s contribution in the annual savings? Like leave $190 in there and put the rest in your e-fund? The expectation would be that at the end of the year you’d still have that amount as a buffer…

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