How/where do you save for "irregular/infrequent expenses"?

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xemit
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How/where do you save for "irregular/infrequent expenses"?

Post by xemit »

I currently use several accounts with an online bank (0.4% APR), each of which is earmarked for a specific "irregular/infrequent expense" that occurs annually, or less frequently (ie. annual life & auto insurance premiums, set aside money for future family vacation expenses, home/car repairs, eventual replacement car purchases, etc). I've set up a monthly automatic savings deposit from my regular "brick and mortar" bank into each of these online accounts, based on our budget--that way, when I get my annual auto insurance premium bill (for example), the budgeted/earmarked money is ready & waiting. I electronically transfer the funds from its specific online bank account back to my regular checking account and pay the bill.

I like that my current approach requires minimal effort after it is initially set up, but wonder if there is a better way to do this. I also wonder if I'm needlessly giving up on interest/returns I could gain by using a different method, although I am admittedly risk-averse since my time horizon is relatively short.

Any insights, suggestions, and advice are appreciated.
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Marseille07
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Marseille07 »

I just use Ally's overdraft feature where I essentially park $0 in checking and let them automatically pull from savings as necessary. I park 3 months worth of expenses there, and holding the rest of my fixed income allocation elsewhere. I rebalance once a month.

I don't earmark irregular / infrequent expenses ahead of time. However, I might temporarily tweak my fixed income allocation to accommodate known & big expenses such as buying a car.
dbr
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by dbr »

Nothing. When we want to spend some lump of money we find a place to get it as may be. The last example when I bought a car was to take my RMD from the 401k in the month I needed it. I think last summer we had some contractor work done and I think cash increased some from dividends received and then plunged with the payment. It is all in the wash. I did give a somewhat large stipend to one of kids but did it by gifting stock that they could sell at 0% cap gains tax.
livesoft
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by livesoft »

Our reality is that we save in stock index funds. A quick look shows VTi, VEA, VEU (which are Total US Stock Market, FTSE Developed Market Index, and FTSE All-World ex-US Index) are our sources to pay for "irregular/infrequent expenses."

We are long past the fear of losing money in the short-term in order to make the big bucks in the long-term. The above investments would have to drop 30% to 50% before they would approach the returns of a rinky-dink savings account return.

The question then becomes: How does a young, early investor wean themselves from wasting their money in a low-, no-interest savings account into some more productive investments?
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dbr
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by dbr »

livesoft wrote: Fri Feb 11, 2022 8:34 am Our reality is that we save in stock index funds. A quick look shows VTi, VEA, VEU (which are Total US Stock Market, FTSE Developed Market Index, and FTSE All-World ex-US Index) are our sources to pay for "irregular/infrequent expenses."

We are long past the fear of losing money in the short-term in order to make the big bucks in the long-term. The above investments would have to drop 30% to 50% before they would approach the returns of a rinky-dink savings account return.

The question then becomes: How does a young, early investor wean themselves from wasting their money in a low-, no-interest savings account into some more productive investments?
Right. In effect our funding of expenses amounts basically to reserving money in higher returning investments.
MathWizard
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by MathWizard »

I do it in savings now.

In retirement, I plan to use my Roth accounts.
Ordinarily pull most of expenses from tax deferred accounts,
and leave any excess "savings" in the Roth accounts as needed.

Explanation of why this will work for me.

I did not have an HSA, but used flex benefits, then

Following a rule of
401k to the match
Max out Roth
back to tax deferred 401k up to max

and using all catch up options,
my Roth accounts are currently about 20% of my total
retirement savings.

I will be doing Roth conversions to the top of the current 12% bracket
so by the time I start pulling from Roth,it will be about half my retirement savings
tashnewbie
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by tashnewbie »

I don't own a home so I have more fixed expenses than I might if I were a homeowner.

I essentially use a mix of cash flow and credit cards to pay for "irregular/infrequent expenses".

None of the things you mentioned would happen unexpectedly except a car repair and car replacement as a result of a major needed repair or an accident. For planned expenses, I generally just put the expense on a credit card and use regular cash flow to pay it off (which may require pausing regular investments for a while). For the unplanned expenses, such as a car repair/replacement or medical emergency, I would put the expense on a credit card (or use financing in the case of car replacement) and then explore my payment options which could include selling from my taxable brokerage account.
UpperNwGuy
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by UpperNwGuy »

I split them between certificates of deposit and high yield savings accounts.
jebmke
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by jebmke »

It is all in my standard portfolio. Has been since my early 40s. Retired now so no need to change.

The one exception is that my estimated taxes are stashed at a bank; this is more for convenience than the need for cash. I want the EFTPS hits to continue in my absence if I check out early - one less thing for my spouse to worry about until the next tax year.
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winterfan
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by winterfan »

Anything that is due within the year (tuition, property taxes, etc.) is put in an online savings account. Otherwise, we save in our taxable account where we're invested in the S&P 500 Index. My spouse has been looking at buying a new car for the last few years. He keeps squeezing more life out of his current car though. When we eventually buy a new one, it will come from our taxable account.
hudson
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by hudson »

xemit wrote: Thu Feb 10, 2022 11:50 pm I currently use several accounts with an online bank (0.4% APR), each of which is earmarked for a specific "irregular/infrequent expense" that occurs annually, or less frequently (ie. annual life & auto insurance premiums, set aside money for future family vacation expenses, home/car repairs, eventual replacement car purchases, etc). I've set up a monthly automatic savings deposit from my regular "brick and mortar" bank into each of these online accounts, based on our budget--that way, when I get my annual auto insurance premium bill (for example), the budgeted/earmarked money is ready & waiting. I electronically transfer the funds from its specific online bank account back to my regular checking account and pay the bill.

I like that my current approach requires minimal effort after it is initially set up, but wonder if there is a better way to do this. I also wonder if I'm needlessly giving up on interest/returns I could gain by using a different method, although I am admittedly risk-averse since my time horizon is relatively short.

Any insights, suggestions, and advice are appreciated.
That works for me. I did that before I retired.
In retirement, I just pay from a checking account. If the balance drops to low, I make a transfer from my "problem solving account" /.5% savings. I top off the "problem solving account" with dividends when needed.
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Bogle7
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Sub-Accounts

Post by Bogle7 »

xemit wrote: Thu Feb 10, 2022 11:50 pm I currently use several accounts with an online bank (0.4% APR), each of which is earmarked for a specific "irregular/infrequent expense"
I have a number of sub-accounts under my credit union account.
Personal
Primary
House
Escrow (property taxes, insurance)
Vacation
Computer
Taxes (estimated payments)

When money comes in (SS, pension), I divvy it up. Simple for me.
I really don't sweat the lost interest income as it is a minuscule fraction of the daily market swings in our retirement funds.
Old fart who does three index stock funds, baby.
KlangFool
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by KlangFool »

OP,

I don't save for those expenses. And, I do not have a budget.

A) I do "Pay Yourself First" saving method. I save 1 year of expense every year.

B) Money to be spent is auto-deposited to checking account and Vanguard taxable account

C) I keep 1 year to 2 year of expense as cash in my emergency fund.

D) I keep my major expense low: House, car, and college education.

E) I have plenty of space in my annual expense for any discretionary expense.

F) If I fall short, I use my emergency fund and spend less in the future to refill the emergency fund.

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8foot7
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by 8foot7 »

hudson wrote: Fri Feb 11, 2022 10:51 am ... I make a transfer from my "problem solving account" /.5% savings. I top off the "problem solving account" with dividends when needed.
We do similar but I should start calling it my problem solving account. Lots of money every paycheck goes to taxable. When the end of a month with a lot of irregular expenses comes, we simply sell and make a transfer. This might happen once every 18 months. We keep a couple of grand in checking beyond what our normal expenses are, but everything else goes into VTSAX, and when a "problem" comes around, we "solve" it by selling and the money's there in the morning.
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AnnetteLouisan
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by AnnetteLouisan »

I have a “misc” line item in my budget (as well as “repairs,” “docs/tests”) and I’m old school, so I keep money in a bank as well as investments. Unexpected things certainly do come up and it’s always gratifying to be able to cover them.
Broken Man 1999
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Broken Man 1999 »

Being retired, DW and I have no savings for any expenses.

Our retirement portfolio provides about 50% of our living expenses, those not covered by our SS benefits.

When we have irregular/infrequent expenses, we remove enough to cover the expenses from our TIRA accounts, just like any other expense we pay.

Each month a decision is made to sell whatever asset is over our desired allocation for that particular asset. Irregular/infrequent expenses are paid using the same decision-based determination as used for regular and routine expenses.

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PersonalFinanceJam
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by PersonalFinanceJam »

Like many others have said, for those things which happen every year such as insurance and property taxes, that money goes in a savings account. We take the estimated yearly payments and divide them into monthly installments. That monthly amount is what goes into the savings account every month. Just as if we were paying any other bill so it’s viewed as an expense. Not savings.

For anything else we would either spend from our taxable account which contains stock index funds or just cash flow the expense.

I think this could be one of those life stage things which is dependent on individual circumstances. When I was young and just starting out, I had a car fund and a house fund so I could save to replace the well used car I had in college and an eventual down payment on a house. Now I no longer see the need.

In retirement we plan on just having the “portfolio” to cover expenses.
Marseille07
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Marseille07 »

Broken Man 1999 wrote: Sat Feb 12, 2022 10:46 am Each month a decision is made to sell whatever asset is over our desired allocation for that particular asset. Irregular/infrequent expenses are paid using the same decision-based determination as used for regular and routine expenses.
This is essentially what I do as well.

Not sure why we need to earmark cash ahead of time, irregular or infrequent. If my portfolio was 1M and 5% was my cash allocation, I just make sure to keep 5% (around 50K in this example). Doesn't matter if I pay a big bill or not.
cabfranc
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by cabfranc »

livesoft wrote: Fri Feb 11, 2022 8:34 am Our reality is that we save in stock index funds. A quick look shows VTi, VEA, VEU (which are Total US Stock Market, FTSE Developed Market Index, and FTSE All-World ex-US Index) are our sources to pay for "irregular/infrequent expenses."

We are long past the fear of losing money in the short-term in order to make the big bucks in the long-term. The above investments would have to drop 30% to 50% before they would approach the returns of a rinky-dink savings account return.

The question then becomes: How does a young, early investor wean themselves from wasting their money in a low-, no-interest savings account into some more productive investments?
Yes this is a question I have asked myself. I think many here are answering from the perspective of retirees. I have just accepted a lower return on this type of money. I have had a car fund for a few years now but continued to drive my current car because prices are sky high and the car works. Maybe I should have just invested it in taxable. When the car breaks, if stocks are down, I could just take a loan.
Marseille07
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Marseille07 »

cabfranc wrote: Sat Feb 12, 2022 12:34 pm Yes this is a question I have asked myself. I think many here are answering from the perspective of retirees. I have just accepted a lower return on this type of money. I have had a car fund for a few years now but continued to drive my current car because prices are sky high and the car works. Maybe I should have just invested it in taxable. When the car breaks, if stocks are down, I could just take a loan.
I don't understand what you're talking about. Unless you're 100% equities, you hold some amount of cash / fixed income. Even at 5% on 1M, that's 50K. Nothing wrong accepting a lower return on 5% of your portfolio.
carolinaman
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by carolinaman »

One approach would be to plan your annual budget and identify irregular payments for the year. Then save 1/12 each month. An easier way for me is document by expenses for this year, identify irregular expenses and save 1/12. You are less likely to miss expenses that way. You could also adjust the irregular expense based upon know adds and deletes. Of course, an emergency fund can cover surprises as well.
livesoft
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by livesoft »

cabfranc wrote: Sat Feb 12, 2022 12:34 pm
livesoft wrote: Fri Feb 11, 2022 8:34 am ...
The question then becomes: How does a young, early investor wean themselves from wasting their money in a low-, no-interest savings account into some more productive investments?
Yes this is a question I have asked myself.
First, one has to get over loss aversion.

Second, one can do this: https://www.bogleheads.org/wiki/Placing ... ed_account pretty much as soon at they have 3 to 6 months of an emergency fund.

Third, one always has to start somewhere and start small, but one has to START NOW!
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Grogs
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Grogs »

For infrequent items like cars, new HVACs, and appliances, I estimate an annualized cost for each of those by using a replacement cost and frequency. I ended up with an amount that's just under $5k/yr so I add that amount to a high-yield savings account every year. If I have one of these expenses, it goes under "major expenses" in my budget and the cost gets pulled from the HYSA. My cost estimates are in the table below.

Code: Select all

Item		Cost	Period (yrs)	 Cost/yr
HVAC		5000	10		 $500.00 
Computer	1250	2		 $625.00 
Paint		4000	10		 $400.00 
Carpet		3000	10		 $300.00 
WH		500	6		 $83.33 
Washer/Dryer	1500	8		 $187.50 
Refrigerator	1200	8		 $150.00 
Stove		1000	12		 $83.33 
D/W		400	10		 $40.00 
					 $2,369.17 
Car (net)	15000	6		 $2,500.00 
Total			 		 $4,869.17 
For annually recurring costs like property taxes or things like vacations that vary year to year, I just cash flow them. I get paid around the 25th every month, and by that point I know the credit card balances that are due at the middle of the following month. From these numbers, I can see how much excess I will have at the low point right before the next payday, and that goes into my taxable account. If a large expense pops up, then my taxable investment for the month goes down.
runner540
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by runner540 »

xemit wrote: Thu Feb 10, 2022 11:50 pm I currently use several accounts with an online bank (0.4% APR), each of which is earmarked for a specific "irregular/infrequent expense" that occurs annually, or less frequently (ie. annual life & auto insurance premiums, set aside money for future family vacation expenses, home/car repairs, eventual replacement car purchases, etc). I've set up a monthly automatic savings deposit from my regular "brick and mortar" bank into each of these online accounts, based on our budget--that way, when I get my annual auto insurance premium bill (for example), the budgeted/earmarked money is ready & waiting. I electronically transfer the funds from its specific online bank account back to my regular checking account and pay the bill.

I like that my current approach requires minimal effort after it is initially set up, but wonder if there is a better way to do this. I also wonder if I'm needlessly giving up on interest/returns I could gain by using a different method, although I am admittedly risk-averse since my time horizon is relatively short.

Any insights, suggestions, and advice are appreciated.
Allocate 1/12 of these (insurance premiums, sinking funds for auto/home maintenance, holidays, travel) to categories in the YNAB app. It all sits in the same checking account, but the app tells us how much we have earmarked for what.
LittleMaggieMae
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by LittleMaggieMae »

I'm still working. Not yet retired. I use to just use a savings account. I truly have "sinking funds" as I do spend the money I am "saving up" to pay off the bills when they arrive. I "love" February and March - as this is when I have the largest outflow of money from the sinking funds (property taxes, insurances, season tickets). Seeing the amount of money leave my accounts sometimes leaves me breathless. In 6 months I'll have another round of bills to be paid - but they will be smaller ones.

My "sinking fund" amounts have gotten rather large over time (I cannot cash flow the majority of them from monthly income especially when a handful of them fall within an 8 week period each year) and I added some additional ones. I wasn't getting much interest at the bank. And I wasn't doing such a good job of keeping track of it on paper or a spreadsheet (and seeing that one BIG DOLLAR AMOUNT in the account bothered me (I'd have to pull up the spreadsheet or find the paper with the break out). And this was the last "old school" tracking on paper/spreadsheet thing I was doing.

I moved all the "sinking fund" money to Ally. The .5% is more than I use to get in interest on my savings account. I also liked that I could set up "buckets" and name them (just like my spreadsheet). I have an scheduled monthly transfer of money to this account (1/12th of the total of all the expenses). I do currently manually move the money from core bucket to my set up buckets and I should probably get that set up so I don't have to do it... but I don't mind doing it. I'm glad I made the change. I'm not having any problems keeping track of my "sinking funds", the money is always there when I need to pay these sometimes really big bills, the automatic transfer keeps me from obsessing about if I forgot to make the transfer (and what kind of a catastrophe will happen if I don't have the $$ available to pay the really BIG bills....)

My sinking funds are:
Property Tax (my house)
House Insurance (my house)
Property Tax (rental property)
house insurance (rental property)
Car Insurance/plates/city stickers
Umbrella Insurance
Season Tickets
Rental Property EF
Vacation/holiday spending
ColoRetiredGirl
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by ColoRetiredGirl »

carolinaman wrote: Sat Feb 12, 2022 1:01 pm One approach would be to plan your annual budget and identify irregular payments for the year. Then save 1/12 each month. An easier way for me is document by expenses for this year, identify irregular expenses and save 1/12. You are less likely to miss expenses that way. You could also adjust the irregular expense based upon know adds and deletes. Of course, an emergency fund can cover surprises as well.
I do the same via You Need A Budget (YNAB) budgeting software. All expenses are available when needed, including big ticket items.
ColoRetiredGirl
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by ColoRetiredGirl »

runner540 wrote: Sat Feb 12, 2022 5:15 pm
xemit wrote: Thu Feb 10, 2022 11:50 pm I currently use several accounts with an online bank (0.4% APR), each of which is earmarked for a specific "irregular/infrequent expense" that occurs annually, or less frequently (ie. annual life & auto insurance premiums, set aside money for future family vacation expenses, home/car repairs, eventual replacement car purchases, etc). I've set up a monthly automatic savings deposit from my regular "brick and mortar" bank into each of these online accounts, based on our budget--that way, when I get my annual auto insurance premium bill (for example), the budgeted/earmarked money is ready & waiting. I electronically transfer the funds from its specific online bank account back to my regular checking account and pay the bill.

I like that my current approach requires minimal effort after it is initially set up, but wonder if there is a better way to do this. I also wonder if I'm needlessly giving up on interest/returns I could gain by using a different method, although I am admittedly risk-averse since my time horizon is relatively short.

Any insights, suggestions, and advice are appreciated.
Allocate 1/12 of these (insurance premiums, sinking funds for auto/home maintenance, holidays, travel) to categories in the YNAB app. It all sits in the same checking account, but the app tells us how much we have earmarked for what.
+1 for YNAB!
Marseille07
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Marseille07 »

I'm really surprised by this earmarking business people are doing. Do you not hold enough cash or something? What about bonds?

Budgeting your expenses is certainly important, but budgeting doesn't require earmarking of cash to pay the bills.
hudson
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by hudson »

LittleMaggieMae wrote: Sat Feb 12, 2022 6:36 pm
My sinking funds are:
Property Tax (my house)
House Insurance (my house)
Property Tax (rental property)

house insurance (rental property)
Car Insurance/plates/city stickers
Umbrella Insurance

Season Tickets
Rental Property EF
Vacation/holiday spending
I'm almost the same; mine are bolded. Maybe most folks are in the same boat?
August is my big month: auto, home, umbrella, and property taxes.
When working, I used a separate account and saved up monthly.
Now retired, insurance bills are paid on a credit card, so I have a month to work it out.
I have 4 months to pay my property taxes, so I just muddle through.

Does the monthly, left-brained, and highly organized savings plan beat muddling through?
Anything that works is good technique.
runner540
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by runner540 »

Marseille07 wrote: Sat Feb 12, 2022 10:50 pm I'm really surprised by this earmarking business people are doing. Do you not hold enough cash or something? What about bonds?

Budgeting your expenses is certainly important, but budgeting doesn't require earmarking of cash to pay the bills.
How do you follow a budget if you don't track what you're spending and how much is left in a category?

Earmarking (or envelope system) of budgeting tells me when I truly have extra to spend more in a discretionary category and when I don't. I hold plenty of cash as a cushion in checking and in an emergency fund (possibly too much). BUT I do not want to spend more than I bring in, and I need to track my expenses carefully to meet savings goals while affording a comfortable lifestyle and giving. We give and save until it hurts (meaning we have to budget and can't spend without thinking).

I've been discouraged recently on BH where the message seems to be "if you have to budget, you're doing it wrong (or not earning enough)". This thread is for people whose cash flow doesn't have $1k+ of flex every month and/or want to carefully manage it.
poker27
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by poker27 »

I use to have several earmarked accounts for large purchases. For example one was a car account, which got up to $20k or so. Problem was, I never bought a new car, so it just kinda stood there. Now I only budget for property taxes which are sizable for me, and I know they will come. Makes it easier for me to not scramble a month ahead of time
livesoft
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by livesoft »

runner540 wrote: Sun Feb 13, 2022 9:19 am.... BUT I do not want to spend more than I bring in, and I need to track my expenses carefully to meet savings goals while affording a comfortable lifestyle and giving. We give and save until it hurts (meaning we have to budget and can't spend without thinking).

I've been discouraged recently on BH where the message seems to be "if you have to budget, you're doing it wrong (or not earning enough)". This thread is for people whose cash flow doesn't have $1k+ of flex every month and/or want to carefully manage it.
I guess my savings goals were never cast in stone nor cast in cash. Sure, we invested (did not use savings accounts, CDs, or cash) all along. We didn't spend without thinking. However, we had/have no problem spending from investments. Money is money whether in cash or in investments to me. Sure, investments can lose money periodically, but our experience is that investments go up more than they go down.
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Marseille07
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Marseille07 »

runner540 wrote: Sun Feb 13, 2022 9:19 am How do you follow a budget if you don't track what you're spending and how much is left in a category?

Earmarking (or envelope system) of budgeting tells me when I truly have extra to spend more in a discretionary category and when I don't. I hold plenty of cash as a cushion in checking and in an emergency fund (possibly too much). BUT I do not want to spend more than I bring in, and I need to track my expenses carefully to meet savings goals while affording a comfortable lifestyle and giving. We give and save until it hurts (meaning we have to budget and can't spend without thinking).

I've been discouraged recently on BH where the message seems to be "if you have to budget, you're doing it wrong (or not earning enough)". This thread is for people whose cash flow doesn't have $1k+ of flex every month and/or want to carefully manage it.
I don't really budget. I already have a list of recurring items such as my phone bill, internet, utilities, auto insurance or what have you. These items are recurring but don't change much.

As far as discretionary spending, I have X% tied to my NW. I'm nowhere near hitting the limit, but it's there. In other words I don't have monthly savings goals but this mechanism keeps me in check in terms of overall NW.
Last edited by Marseille07 on Sun Feb 13, 2022 11:31 am, edited 1 time in total.
tj
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by tj »

If I need to pay for something and don't have enough cash, I sell stock. I don't budget. If push comes to shove, I could reduce my retirement contributions, but I haven't done that yet.
sailaway
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by sailaway »

runner540 wrote: Sun Feb 13, 2022 9:19 am
I've been discouraged recently on BH where the message seems to be "if you have to budget, you're doing it wrong (or not earning enough)". This thread is for people whose cash flow doesn't have $1k+ of flex every month and/or want to carefully manage it.
It appears we actually have the same flexibility, we just think about it differently. Sinking funds are an excellent tool for managing cash flow, I wouldn't say it was wrong. Someone once referred to this close budgeting as training wheels, not sure I agree with that either. It just doesn't work for me. Having a spreadsheet or an app tell me that I can spend $200 on clothes because I haven't bought any in awhile, but I overspent on my car by $50 was almost as nerve wracking as actually being broke and not sure how I was going to pay for that car repair. I stress less having that $150 difference to put to whatever I need this month and figuring out where to pull the money from (or where to cut back the spending) on an ad hoc basis. It doesn't necessarily mean our actual spending is all that different, just that we have each found the best method for our personalities.

I don't accept someone telling you that budgeting is wrong any more than I accept someone telling me that I have to budget to be financially responsible.
cabfranc
Posts: 271
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by cabfranc »

Marseille07 wrote: Sat Feb 12, 2022 10:50 pm I'm really surprised by this earmarking business people are doing. Do you not hold enough cash or something? What about bonds?

Budgeting your expenses is certainly important, but budgeting doesn't require earmarking of cash to pay the bills.
As an accumulator, my bonds are in my 401k, which I don't withdrawal from to pay lumpy expenses. I have an emergency fund which is primarily for job loss that I don't touch. Some lumpy expenses that I have throughout the year include:

-Summer camp ($5000)
-Life insurance ($4000)
-Disability insurance ($9000)

These amounts are more than the usual amounts we float in checking once the mortgage and other regular expenses are paid, so we necessarily have to save some extra cash aside for them each month.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: How/where do you save for "irregular/infrequent expenses"?

Post by Marseille07 »

cabfranc wrote: Sun Feb 13, 2022 12:15 pm As an accumulator, my bonds are in my 401k, which I don't withdrawal from to pay lumpy expenses. I have an emergency fund which is primarily for job loss that I don't touch. Some lumpy expenses that I have throughout the year include:

-Summer camp ($5000)
-Life insurance ($4000)
-Disability insurance ($9000)

These amounts are more than the usual amounts we float in checking once the mortgage and other regular expenses are paid, so we necessarily have to save some extra cash aside for them each month.
I see. I guess our allocations are quite different then. I park more than 100K in cash (this is part of my fixed income allocation), so I don't really need to earmark anything. Barring extreme circumstances, I always have "enough" cash available.
LittleMaggieMae
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by LittleMaggieMae »

hudson wrote: Sun Feb 13, 2022 5:05 am
LittleMaggieMae wrote: Sat Feb 12, 2022 6:36 pm
My sinking funds are:
Property Tax (my house)
House Insurance (my house)
Property Tax (rental property)

house insurance (rental property)
Car Insurance/plates/city stickers
Umbrella Insurance

Season Tickets
Rental Property EF
Vacation/holiday spending
I'm almost the same; mine are bolded. Maybe most folks are in the same boat?
August is my big month: auto, home, umbrella, and property taxes.
When working, I used a separate account and saved up monthly.
Now retired, insurance bills are paid on a credit card, so I have a month to work it out.
I have 4 months to pay my property taxes, so I just muddle through.

Does the monthly, left-brained, and highly organized savings plan beat muddling through?
Anything that works is good technique.
I agree that what works is probably the best plan. I like the steady even monthly "save up" method - it has more to do with managing my stress/anxiety levels than being rational. :) "muddling through" = higher stress/anxiety for me. Especially when a "known expense" unexpectedly gets bigger - or all of them creep up a little (resulting in a bigger than expected expenditure). :)

The save 1/12th monthly plan removed the "feast/famine" stress that I seem to feel when I try to 'cash flow' big known expenses. I did build up a 2 month "buffer" so there's always a bit more money in a sinking fund that is due for the bigger bills (property taxes) so even if the totals jump - I can still cover the bills (and the figure out how I will deal with the next round of them... :)
togb
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by togb »

This is really interesting to read about the different approaches!

I used to have a budget that did not include all of the "irregulars" that really popped up-- AND, for those that I budgeted $XX/month, sometimes it was less, sometimes more, but I could not count on the money sitting there vs getting gobbled up by overspending somewhere else. As I get close to retirement, I tried to get more precise about irregulars and EF.

For me, irregulars are things that will happen every year-- but not evenly over the months. For the most part, the irregulars I know I must accommodate every year, run about $24K. I get paid biweekly, so I put aside $1000 per check in my brokerage account. As I incur irregular expenses, I transfer the money from brokerage to checking and pay the bills. I'm tracking it, because I do want to ensure I have a good handle on these expenses for planning purposes. Until I started really tracking, I would not have guessed I needed $24K for irregulars, and obviously you MUST have a realistic handle on your expenses if you're going to retire successfully.

My EF are things that don't happen every year-- but they do happen. Replacing tires on vehicles, major repairs, replacing an appliance or the HVAC, major vet bills. I need to have a minimum of $20K in that EF, which sits in a tax free fund in the brokerage account earning about 3%. If I have a really rough spell, $20K might not be enough-- but in that case I'll pull from cash in my tIRA. This year I've already had a few major hits to the EF, so the budget now includes rebuilding the EF as a budget category-- and I've increased the payroll deduction from each check accordingly.

The irregulars related to my rental property are separate, and held in the checking account for that property. Each year I have about $5K in insurance and property taxes, typically $2K in repairs/expenses, and like to have a cushion of another $5K. So when rent checks come in, I don't take it all as cash flow-- I leave about $750 in that account to cover all that stuff.

When I retire, and there is no more paycheck to allocate the $24K in irregulars, I guess I'll just pull the money out as needed. I'm intrigued by a savings tool that allows you to have categories/buckets. I just have a ledger book.
runner540
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by runner540 »

sailaway wrote: Sun Feb 13, 2022 10:47 am
runner540 wrote: Sun Feb 13, 2022 9:19 am
I've been discouraged recently on BH where the message seems to be "if you have to budget, you're doing it wrong (or not earning enough)". This thread is for people whose cash flow doesn't have $1k+ of flex every month and/or want to carefully manage it.
It appears we actually have the same flexibility, we just think about it differently. Sinking funds are an excellent tool for managing cash flow, I wouldn't say it was wrong. Someone once referred to this close budgeting as training wheels, not sure I agree with that either. It just doesn't work for me. Having a spreadsheet or an app tell me that I can spend $200 on clothes because I haven't bought any in awhile, but I overspent on my car by $50 was almost as nerve wracking as actually being broke and not sure how I was going to pay for that car repair. I stress less having that $150 difference to put to whatever I need this month and figuring out where to pull the money from (or where to cut back the spending) on an ad hoc basis. It doesn't necessarily mean our actual spending is all that different, just that we have each found the best method for our personalities.

I don't accept someone telling you that budgeting is wrong any more than I accept someone telling me that I have to budget to be financially responsible.
The app I use (YNAB) actually prompts me to cover the $50 overspending in one category with excess from other categories, so that I can't overspend the total budget. Each month you can change things as you go but have to account for everything. In the accumulation stage, I don't want to pull from savings or investments for monthly/annual expenses.
runner540
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Joined: Sun Feb 26, 2017 4:43 pm

Re: How/where do you save for "irregular/infrequent expenses"?

Post by runner540 »

tj wrote: Sun Feb 13, 2022 10:28 am If I need to pay for something and don't have enough cash, I sell stock. I don't budget. If push comes to shove, I could reduce my retirement contributions, but I haven't done that yet.
I include 1/12 of my annual expenses in my monthly budget, so that I don't have to reduce retirement contributions (unless something truly unpredictable and extreme happened).
tj
Posts: 9317
Joined: Wed Dec 23, 2009 11:10 pm

Re: How/where do you save for "irregular/infrequent expenses"?

Post by tj »

runner540 wrote: Mon Feb 14, 2022 8:40 pm
tj wrote: Sun Feb 13, 2022 10:28 am If I need to pay for something and don't have enough cash, I sell stock. I don't budget. If push comes to shove, I could reduce my retirement contributions, but I haven't done that yet.
I include 1/12 of my annual expenses in my monthly budget, so that I don't have to reduce retirement contributions (unless something truly unpredictable and extreme happened).
I don't earn enough $$$ to cash flow unexpected lumpy expenses out of paychecks and max contributions to tax advantaged accounts.
Holocene
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Holocene »

I keep enough in checking/savings to cover average expenses for about a year. My expenses are low so this isn't a ton, but enough where I don't ever really have to think about it. Any additional money gets invested in taxable or lately into the mega-backdoor Roth (after regular 401k and Roth IRA are maxed of course). For large one-time unexpected expenses (ie. house/car repair), I always can use my taxable account of mostly stocks and some muni bonds. But I haven't needed to do that so far. I might just pull a bit more out of checking/savings one month and replenish it over the next few months. I don't really see the point of multiple savings buckets for every possible expense. What are the chances you'll actually need all of those at the same time? So I prefer a bucket of checking, bucket of savings, and huge bucket of investments. While it'd suck to sell investments at a loss in an emergency, I've made huge gains by doing it this way over the past decade so I'm not too hung up on it.
Doc7
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by Doc7 »

xemit wrote: Thu Feb 10, 2022 11:50 pm I currently use several accounts with an online bank (0.4% APR), each of which is earmarked for a specific "irregular/infrequent expense" that occurs annually, or less frequently (ie. annual life & auto insurance premiums, set aside money for future family vacation expenses, home/car repairs, eventual replacement car purchases, etc). I've set up a monthly automatic savings deposit from my regular "brick and mortar" bank into each of these online accounts, based on our budget--that way, when I get my annual auto insurance premium bill (for example), the budgeted/earmarked money is ready & waiting. I electronically transfer the funds from its specific online bank account back to my regular checking account and pay the bill.

I like that my current approach requires minimal effort after it is initially set up, but wonder if there is a better way to do this. I also wonder if I'm needlessly giving up on interest/returns I could gain by using a different method, although I am admittedly risk-averse since my time horizon is relatively short.

Any insights, suggestions, and advice are appreciated.
OP, I only do this for 2-3 ~$1000 annual expenses, as well as two earmarked vacations funds. I use CapOne360 and it takes about 45 seconds to make an account for this purpose. I think the method is sound. It dramatically stabilizes the account throughout the year. All of our annual expenses are "monthetized" on our budget spreadsheet, and at lower income levels we had a wider band of items that would have an earmarked account (such as car insurance premiums). I don't think at you are giving up any yield here, as there is not a better savings vehicle for this type of item and at least at Cap One 360, the earmarked savings accounts are earning slightly more than the main in-and-out checking account (0.40% vs 0.10%).
txgolfer_19
Posts: 84
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Re: How/where do you save for "irregular/infrequent expenses"?

Post by txgolfer_19 »

We don’t really save for any of those items, we just pay for them out of monthly cash flow when they come it. In other words, we just save less the months that those come up. For car purchases, next time that I think we may be within 12 months or so, I may start to save up some cash, and then either take out a loan for what’s left or pull from taxable depending on the loan rate.
togb
Posts: 319
Joined: Mon Oct 23, 2017 8:36 pm

Re: How/where do you save for "irregular/infrequent expenses"?

Post by togb »

this thread is interesting to me, as someone who just started separating out my irregular expenses a couple years ago. Before that, I always found a way to handle them, but I did not really have a "plan". Some of them were baked in to monthly expenses, but I was unsure that the funds "accrued" as planned when the expense was months away.

I've used "irregulars" for things that will happen every year-- but not sure when. The EF is for things I hope won't happen ,but eventually they could, so need to have some reserves. I have a LOT of irregulars- property taxes, tree removal, repairs/replacements of appliances, fencing, medical expense up to my deductable, lawn care, filling the barn with hay for the winter, Christmas. All told, the irregulars are close to $30K a year. If most or all my emergencies happened in a single year, it could be about the same-- but so far my worst year about half that much.

The closer I get to retirement, the more I want to ensure a really accurate understanding of my expenses. So I'm keeping a mind numbing about of detail. Through payroll deduction, the checking account gets enough to cover the monthly bills. And another chunk goes to the brokerage account for irregulars or emergencies. My after tax/after deductions pay check does not fully cover the amount I should be putting towards irregular/EF, so each year there's a little jugging. Some years it's clear I'm not going to spend my whole deductable-- so there's room for optional hobby expense. Or I might decide to forego the cosmetic dermatology to take a vacation. It mostly works.

It's weird for me to think of just pulling it all out, not having income to put IN to the Irregular stash. Let alone the EF. I guess after retirement you just do what you have to do? RIght now if I had a big enough emergency I'd pull from my Roth. My plan is to use the Roth for indulgences or emergencies, depending on how life is going that year. I keep thinking though, that I should figure some way to put specific money in there earmarked as EF. I think this is one of the hurdles I will face with retirement, when it's all drawdown. It's all money, regardless of the plan or what actually transpires. It's not the way I've managed things-- I have a certain account, or a certain holding, that's for a specific purpose. I did this so I can easily see that I"m funded. (which leads to an odd thing like seeing 18K in an account that should have 20K and fretting, even though total assets are still fine)

I envy those on this thread who clearly are much more chill, much more confident about irregular expenses. If mine were not so significant maybe I'd not be struggling. Who knows.
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: How/where do you save for "irregular/infrequent expenses"?

Post by dbr »

togb wrote: Sat Oct 01, 2022 10:24 pm
I envy those on this thread who clearly are much more chill, much more confident about irregular expenses. If mine were not so significant maybe I'd not be struggling. Who knows.
I may be the crux of the issue is your threshold for significant. In 15 years retired our highest spending month was about twice the average spend and the lowest about half the average spend. That seems like a hugely significant thing. But also judge that by what fraction of total wealth was consumed in one year or another. If the average is 5% and one year it is 2.5% and another it is 10% and the extreme is one time out of fifteen, then that really is not a big deal. If you are faced with pulling out 20% of your wealth and more than once in twenty years or so, or even more than that, then some hard thinking needs to be done about how to do it. What does your list actually look like?

Note you can use a model like FireCalc to model how this might work as there is a page that allows a lump sum to be taken from the portfolio above and beyond regular spending by up to three times in specific years. There is no implication that the lump sum needs to have or should have been in a special account invested a special way.
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: How/where do you save for "irregular/infrequent expenses"?

Post by KlangFool »

togb wrote: Sat Oct 01, 2022 10:24 pm
I have a LOT of irregulars- property taxes, tree removal, repairs/replacements of appliances, fencing, medical expense up to my deductable, lawn care, filling the barn with hay for the winter, Christmas. All told, the irregulars are close to $30K a year. If most or all my emergencies happened in a single year, it could be about the same-- but so far my worst year about half that much.
togb,

1) What is your current annual expense not including those stuff?

2) Among this 30K, some of them are optional. Or, you can spend it later.

3) If your annual expense including this is about 100K per year, you just allocate/plan to spend 100K per year. So, where is the problem?

I do not understand what your problem is. The simple fact is you have a choice. And, many of those expenses are discretionary. You need to separate the discretionary from the fixed expense in your annual expense. Then, allocate a fixed amount to the discretionary expense.

KlangFool
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runner540
Posts: 1763
Joined: Sun Feb 26, 2017 4:43 pm

Re: How/where do you save for "irregular/infrequent expenses"?

Post by runner540 »

xemit wrote: Thu Feb 10, 2022 11:50 pm I currently use several accounts with an online bank (0.4% APR), each of which is earmarked for a specific "irregular/infrequent expense" that occurs annually, or less frequently (ie. annual life & auto insurance premiums, set aside money for future family vacation expenses, home/car repairs, eventual replacement car purchases, etc). I've set up a monthly automatic savings deposit from my regular "brick and mortar" bank into each of these online accounts, based on our budget--that way, when I get my annual auto insurance premium bill (for example), the budgeted/earmarked money is ready & waiting. I electronically transfer the funds from its specific online bank account back to my regular checking account and pay the bill.

I like that my current approach requires minimal effort after it is initially set up, but wonder if there is a better way to do this. I also wonder if I'm needlessly giving up on interest/returns I could gain by using a different method, although I am admittedly risk-averse since my time horizon is relatively short.

Any insights, suggestions, and advice are appreciated.
I use YNAB to bucket money in sinking funds for all those things. 1/12 per month of annual insurance premiums, holiday gifts, travel, auto/home maintenance
Doc7
Posts: 1122
Joined: Fri Aug 24, 2007 12:55 pm

Re: How/where do you save for "irregular/infrequent expenses"?

Post by Doc7 »

runner540 wrote: Sun Oct 02, 2022 7:06 pm
xemit wrote: Thu Feb 10, 2022 11:50 pm I currently use several accounts with an online bank (0.4% APR), each of which is earmarked for a specific "irregular/infrequent expense" that occurs annually, or less frequently (ie. annual life & auto insurance premiums, set aside money for future family vacation expenses, home/car repairs, eventual replacement car purchases, etc). I've set up a monthly automatic savings deposit from my regular "brick and mortar" bank into each of these online accounts, based on our budget--that way, when I get my annual auto insurance premium bill (for example), the budgeted/earmarked money is ready & waiting. I electronically transfer the funds from its specific online bank account back to my regular checking account and pay the bill.

I like that my current approach requires minimal effort after it is initially set up, but wonder if there is a better way to do this. I also wonder if I'm needlessly giving up on interest/returns I could gain by using a different method, although I am admittedly risk-averse since my time horizon is relatively short.

Any insights, suggestions, and advice are appreciated.
I use YNAB to bucket money in sinking funds for all those things. 1/12 per month of annual insurance premiums, holiday gifts, travel, auto/home maintenance




In CapOne360 I have many bucket savings accounts set up. However, for simplicity, one account is just called “Insurance - Propane - Property Taxes” and gets the monthly 1/12th, rather than having several additional separate accounts for these annual expenses. For whatever reason, my hunt club annual dues are in a separate bucket and I might go ahead and correct that this evening now that I’m thinking about it. Our other buckets are a generic “projects fund” (which means, discretionary non-assigned spending), our his and hers hobby money ($150/mo each for whatever we deem fun etc), and two designated long term trip accounts (Aruba and Disney). Our normal “annual vacation budget $109/mo” “entertainment money $250/mo” etc is all just part of the balance sloshing around in our main checking account with no designated bucket, tracked on Excel only.
Last edited by Doc7 on Sun Oct 02, 2022 7:11 pm, edited 1 time in total.
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