Author Topic: Short-term savings for long-term budgets (cars, irregular expenses)  (Read 2239 times)

neo von retorch

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How many of you have monthly line-items in your budget for the things you suspect you'll buy one day?

For example, you've reduced your car fleet to one moderately used vehicle with absolutely no debt attached to it. You'll get 150k and 10 years more out of it. But. You will need tires. You will need spark plugs and wires and a distributor cap. You will even need oil and filters. But you don't them today or this month.

Do you calculate out the expense and transfer money into a liquid fund that you can access when the time comes to spend it?

Plus - someday, that car just won't do it any more. Now, you don't have a car payment, but assuming you spend just $5000 every 10 years on a car, you still need just over $40/month to pay for that car. Do you have a "car payment" automatic transfer as well, perhaps to a stable dividend producing bonds fund?

Of course there are lots of other expenses that work this way. Eventually you need some home maintenance (re-seal the driveway, replace well-worn carpets, fix that rusty mailbox). How do you budget for them in conjunction with your "high savings rate" plans?

bacchi

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Re: Short-term savings for long-term budgets (cars, irregular expenses)
« Reply #1 on: August 15, 2014, 01:12:37 PM »
I "spend" a certain amount each month for car, house repairs, etc. It comes out to $750/month. I do not count this as "savings" in my savings rate. It's a depreciating expense.

Each category has a cash amount that I keep in Capital One Direct. The rest goes into the market using my AA. When the category hits its maximum, further contributions are halted.

For example, I set the "car fund" (for major repairs and replacement) at $9000. I keep $1000 in cash and the remaining $8000 is invested.

PloddingInsight

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Re: Short-term savings for long-term budgets (cars, irregular expenses)
« Reply #2 on: August 15, 2014, 01:21:29 PM »
On my balance sheet (excel) I have liabilities representing future random expenses.  Kind of like paying into a savings account, except with an actual extra account.

I generally consider cash minus my accrued liabilities to be the amount of money I "have" at any given moment.  When I have an unexpected expense, I subtract that from the liability at the same time the money leaves my account, so there's no affect on the overall balance.

The amount of the liabilities is automatically calculated by formulas in excel, so I don't have to do anything to keep it updated.  It even increases the savings rate over time for inflation.

I have separate liabilities recorded for different categories, like new car, car repair, home repair, etc.

Right now I add about $750/mo for all categories combined, so about the same as the previous poster.

zolotiyeruki

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Re: Short-term savings for long-term budgets (cars, irregular expenses)
« Reply #3 on: August 16, 2014, 12:35:26 PM »
Quote
How many of you have monthly line-items in your budget for the things you suspect you'll buy one day?
We do!

We have two bank accounts (checking, savings), and every month's budget has a $500 line item for "infrequent expenses," which corresponds to an automatic transfer from checking to savings.  We use that money for mandatory stuff like car insurance and HOA dues and saving up for a new van, and for more discretionary-type spending like Christmas, furniture (we take our time here) and vacations.  We also use the amount for unexpected things like car repairs.  If something mandatory exceeds its budget, or if there's an unexpected expense, we reduce or defer the more discretionary stuff.

At the end of each year, we plan out how we will use the $6000 the following year.  For example, $700 for Christmas (that's everything--gifts, food, decorations, tree--and I'm trying to get my wife to cut down on the gifts), $540 for HOA dues, $750ish for car insurance, etc.  The past two years, we've done $2500 or $3500 each year to save up for our new (to us) van.

yandz

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Re: Short-term savings for long-term budgets (cars, irregular expenses)
« Reply #4 on: August 16, 2014, 03:10:20 PM »
This issue is the very one that caused me to break down and get YNAB.  We were saving, knowing that some of that money would go toward irregular, longer term expenses.  I like to have a firm grasp on exactly what those dollars and while still allowing flexibility (because unfortunately, you never know exactly). Mint wasn't friendly to this sort of thing. YNAB lives for it. I didn't want to love it, but I do.

And just in case you are sold one it, here is a referral code for 6 bucks off.  http://ynab.refr.cc/M5RXQDW