If I asked you to deduct your monthly expenses from your monthly income, I have a feeling you would look pretty good on paper. The mystery for many people is why they can’t go a month without using a credit card to cover unforeseen expenses, like a prescription for a sick child, a quarterly insurance premium, or a wedding party gift. .

Your fixed, predictable monthly bills aren’t the problem. Either way, rent and utilities are paid and the family is fed. The problem is the accumulation of non-monthly expenses. Some are easily predictable; others are not.

Here’s the problem: Every day we wear out our cars, the kids throw off their shoes, we use our prepaid insurance, and we get closer to vacations and vacations. But we manage our money like none of this will ever happen. And when they do, we collapse into a pitiful heap and bemoan the fact that, once again, we have been overcome by an emergency – another financial crisis!

The solution to this problem is to set up what I call a “freedom account” which forces you to anticipate unforeseen, irregular, and intermittent expenses and fund your own emergencies.

STEP NO. 1:

DETERMINE

IRREGULAR

FRESH

Using your check records for the past 12 months, your credit card statements, your income tax return, or if all else fails, your memory, make a list of the expenses you incurred during the course. from the last year that you haven’t paid on a monthly basis. This can be insurance, property taxes, Little League fees, gifts, clothing, vacations, Christmas, car repairs, sports, recreation, etc.

Find an annual number (estimate if you don’t know), then divide by 12 to come up with a number that is one-twelfth of the total annual expenditure.

For example:

Auto maintenance: $ 900/12 = $ 75

Auto insurance: $ 540/12 = $ 45

Christmas: $ 800/12 = $ 66

Property taxes: $ 600/12 = $ 50

Vacation: $ 720/12 = $ 60

Clothing: $ 600/12 = $ 50

Total: $ 346

STEP NO. 2: OPEN ANOTHER

VERIFICATION

ACCOUNT

It’s easier if you open it at your current bank or credit union. Order checks for this new account and personalize them, including a line that says “freedom account”. You need two active checking accounts for this to work. Your checking account will continue to accommodate your monthly expenses and deposits.

STEP NO. 3:

AUTHORIZE A

AUTOMATIC

DEPOSIT

When you open this account, request an automatic deposit or money transfer authorization form. Fill it out by asking the bank to transfer your monthly total of your irregular spending (in our example, it’s $ 346) from your regular checking account to your Freedom account every month on the same day.

STEP NO. 4: GET A NOTEBOOK

Any three-ring binder will do. Fill it with paper. Prepare one page for each sub-account you have chosen. Fill in the title of the sub-accounts you established in step # 1. Enter the amount to deposit into this sub-account each month in the upper right corner. Prepare five columns for each sub-account: “date”, “description”, “entry”, “exit” and “balance”.

STEP NO. 5: MANAGE YOUR FREEDOM

ACCOUNT

You now have a new regular monthly expense; in this case, it is $ 346. This will sound weird at first. The truth is, you are managing your money in a new way that puts you in control and reduces your reliance on credit.

Each month when this automatic money transfer happens, go to your Freedom account book and enter the deposits on each page so you always know how much you have in each sub-account.

Sometimes you will be tempted to think of this new account as a savings account or an investment pool. It is not a savings account. It is a management account from which you will pay your irregular expenses using the checkbook you obtained when you opened it.

You might be tempted not to fund your savings or emergency fund in favor of your Freedom Account. Don’t do that. Scrimp wherever you need to to free up funds for your Freedom Account each month while continuing to grow your savings.

Your new Freedom account will give new meaning to the term ebb and flow. He’ll rack up big balances and then drop to next to nothing. But that’s how it’s supposed to work. It is strictly a financial management tool that will make you feel confident and very grown up.

Feel free to create lots of sub-accounts, even if you can’t fund them all at first. It’s okay to have unpaid pages right now, so dream big. Design with the future in mind!

Mary invites you to visit her at EverydayCheapskate.com, where this column is archived with links and resources for all recommended products and services. Mary invites questions and comments to https://www.everydaycheapskate.com/contact/, “Ask Mary.” Tips may be subject to tips.everydaycheapskate.com/. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog, and the author of the book “Debt-Proof Living”.

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