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Wednesday, August 15, 2007

The Infrequent Bills Account

I posted recently about moving our emergency fund into a liquid CD account, and mentioned that we only put most of our money market into that account. We left a little more than the minimum required to avoid a monthly fee in the money market, and I found myself asking why I had left the account open. And then it hit me: I could now use the money market to park money for infrequent bills like our numerous insurance payments, property taxes, etc.

I'd read about the idea many times before. The concept is simple. You take all of your non-monthly bills, add them up, then divide by 12. That's amount of money you should be putting aside each month to pay for these bills.

I had tried to do this without a separate account, and just keeping the money in the accounts we pay bills out of. But it never worked - inevitably, I'd eventually need to tap our emergency savings to cover a large bill like the twice-a-year property taxes. But I didn't want to open yet another account just for this purpose. Well, now I don't have to open another account, I'm just re-purposing an account I already have. I'm very excited!

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  • At 8/15/07, 9:17 AM, Blogger beth said…

    I set up extra accounts in ING to pay for the annual or bi-annual bills, with auto-deposits. It might be one of the smarter things I've ever done in my life. I was definitely not good about savings money monthly to pay those bills!

  • At 8/15/07, 8:25 PM, Blogger Chief Family Officer said…

    Beth - How many accounts did you open and why more than one? Just curious - I would love to know how you use each account.

  • At 8/16/07, 11:15 AM, Blogger beth said…

    Using ING, once you're logged into the account, you can click "Open an account." Technically, I have six different accounts, but by logging into my ING acocunt, I see all six of them at once. It helps me visualize how my money is being saved. (There's also a "Total Deposits" showing how much I have in total.)

    I figured out how much I need to save each paycheck to pay each bill, and set up an account. I need to put in $12/paycheck to pay for baseball season tickets, $55 to pay for insurance, and I estimated how much money I would need for more fun things ("trips") and put that money in each paycheck. It's really more for my visualization so I can actually see the amounts I'm saving for each event, and I will feel good when my next bill comes through and I can pull money out of savings that was planned to pay that specific bill. And, as a bonus, my general savings account won't go down. I always hated taking money from there. It felt like I wasn't saving if money was being taken from savings.

    Also, it is a way to force me to save for these events, rather than just pulling money from general savings. If I allow myself to just pull from savings for everything, it's amazing what money I'll spend. When money is earmarked for "fun" or "insurance", I have to be more responsible about how much I can spend for "fun."

    (What might be a bit odd is that I've never been in serious debt. However, I recognized recently that I needed to be more responsible, too, to keep me out of debt.)

  • At 8/16/07, 8:51 PM, Blogger Chief Family Officer said…

    Interesting, so you have an account for each savings item, huh? Thanks for sharing that.

    Also, I'm totally with you on not drawing from the main savings - that's why I'm so excited about using the money market to park the funds we'll need later :)

  • At 8/22/07, 2:33 PM, Blogger Loonies And Sense said…

    I love this idea. This has been THE biggest factor in my financial "turn-around". I use this for vehicle service, license/passport renewals, gifts, etc. Anything that's predictable, but happens less frequently than monthly, I set aside in this account. I've seen it referred to as a "Freedom Account", and it is probably my favourite PF innovation.

  • At 8/22/07, 8:26 PM, Blogger Chief Family Officer said…

    Loonies and Sense - Glad to hear it's working out for you. I hope it works just as well for us!

  • At 8/23/07, 9:15 PM, Anonymous Ben said…

    One thing to bear in mind is that if you get paid fortnightly there are 13 months in a calendar year. Another thing to consider is if the semi-annual or annual amount is going to increase in six-months or twelve months time. I have four annual financial committments that I am putting money aside for and I have calculated the potential increases, plus a bit extra, that they will undergo in 2008. This way I am confident that I won't have a shortfall in my budget.

  • At 8/23/07, 9:29 PM, Blogger Chief Family Officer said…

    Ben 0 That's a great idea! Unfortunately, I only get paid once a month ...


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