1/19/2011

Some things are not UNEXPECTED expenses

Christmas comes every December. Kids go back to school in September. The car needs new tires. These items are not unexpected. However, the family budget is often surprised by these predictable expenses.
These irregular items can really wreck efforts of money management. Planning for predictable expenses need to be incorporated in a good spending and savings plan.
Saving a portion of the tax refund can be one way to prepare for irregular expenses. The money saved will reduce financial stress. Imagine how it would feel to have money saved for Christmas, and no holiday bills arriving in January!
A Club Account at a local credit union or bank is a great way to save for upcoming events.  Christmas clubs and vacation clubs allow money to be saved for a specific period of time, called the term of the club.  The term can range from a few weeks to a year or more.  This is a great place to save money before an upcoming expense instead of using debt. Funds can be deposited manually or transferred from a checking account automatically.
Another great idea is the revolving savings account. This is money set aside every month in a savings account specifically for these expenses that do not come every month. The money in this account may be for several items.  Below is an example of a revolving savings account.

Expenses                             Total amount needed                    Monthly amount to save
Christmas                            $300                                                       $300/12 months = $25
Car repairs                          $240                                                       $240/12 months= $20
Car insurance                     $600                                                       $600/6 months = $100
Total savings deposited in account          $145 per month

This $145 deposited in the savings account every month will allow for withdraws for the whole amount of the expense (Christmas, Car repair, ect.) when the money is needed.
It is not a good idea to charge these expenses on a credit card without a plan to pay them off. Caution must be used when using debt to provide basic living expenses. A credit card is convenient, almost too convenient.  If a credit card it used to pay for items that reoccur without quick repayment, debt will build quickly. 
A better option may be the debit card which drafts money from the checking account for each purchase. Debit cards only allow money actually in the account to be spent.  This forces spending choices. ‘Will we purchase groceries for 4 days or eat out tonight?’
A debit card can have a major credit card logo and may offer the same buyer protection. It is important to ‘opt out’ of options that allow overspending the money in the account. Overdraft protection is often expensive because of the fees charged. Use the convenience of the debit card but do not purchase items that are not budgeted in the spending plan.
Planning for predictable expenses is a smart plan. Think about the expenses that are budget busters for your finances and use one of the savings option discussed to plan for the expenses.
Savings helps you expect and plan for predictable expenses!

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