For my family, 2011 was the year of unexpected expenses.
The clothes dryer broke in January. The water heater started leaking in November. Our
rickety picket fence fell down in a spring windstorm. The dog needed surgery this fall. And my 8-year-old car was totaled in an icy rearend crash last month.
Thankfully, none of these expenses broke the bank, largely because we’d prepared for the
unexpected. In reality, new appliances, household repairs, pet costs and vehicle expenses are not a matter of if but when. If you want to avoid going into debt, you need to be ready for “when,” whenever it may come.
Here’s a trick I learned from financial counselors at the Village Family Service Center in Fargo. Add up all your periodic expenses for the year, things like insurance premiums,
annual veterinary visits, gifts and travel. Factor in money for car and home repairs (I once read it’s a good idea to set aside 1 percent of your home’s value each year for maintenance). Now divide that figure by 12, and set aside that amount each month to pay for these potential budget busters.
Consider it a “spending account” instead of a savings account, but don’t touch that money
unless it truly is for one of these expenses. One way to keep the money separate is an online savings account. My husband and I have used an online bank for years to divert dollars for these inevitable outlays.
These accounts can earn you a higher interest rate than brick-andmortar banks offer (though these days, we’re talking tenths of a percent). Some well-known online banks include ING, Emigrant Direct and Ally Bank.
What I like about our online accounts is they keep this money out of sight and out of mind.
It takes an extra day to access your funds, making it less tempting to raid. Automatic transfers from our checking make contributing to the account routine and painless.
My favorite part, though, is that I’m able to name the accounts. It may sound silly, but
those names provide a sense of peace.
There’s the “car fund” for vehicle repairs, insurance, registration and our next car. (We’ll be replenishing it after purchasing my new-to-me Chevy Impala last month.) The
“escrow account” covers homeowner’s insurance and taxes. “Periodic expenses” is
where I put $60 every two weeks for future vet bills, gifts and other incidentals.
A friend recently told me that when she and her husband face an unexpected expense, like
when their well-worn car broke down a few weeks ago, it’s painful to pull the money from their general savings. Having money designated for specific purposes makes it less stressful to spend because that’s what the money is there for. We don’t need to tap our emergency fund, so fewer things feel like emergencies.
We’re hoping to face fewer surprise expenses in 2012. But if, or rather when, they come up, we’ll be prepared.
Be prepared. Who knew those Boy Scouts were so financially savvy?