Save Monthly for Large, Anticipated Expenses: Rule 7

Save Monthly

This is Rule 7 in my 10 Rules to Eliminate Debt and Change Your Life

At this stage in the 10 Rules, you are now spending less than you earn and living on a monthly bills and expenses budget. The last thing you need is a large expense to cause you to miss a monthly debt payment and wreck your progress.

I’m not talking about an emergency. We can use an emergency fund to cover the unexpected things life throws at us. I’m talking about expenses we should expect, but forget about. Things like Christmas, tuition payments, taxes due, etc.

Last year we were planning a small family vacation to Chicago. I used our tax return check to fund most of the trip. Then I remembered that our oldest daughter’s school tuition was due the same month, around $1,500.

The previous year I had just used the tax refund to pay for it. This time I had spent it and had no extra money to fund the expense. This meant I had to instead use the money I had been dedicating towards debt payoff to pay the bill.

That also meant one month longer until debt freedom.

Step One

After that slip up I decided that I wasn’t going to let a large expected expense derail me. The first step I took was to decide what dollar amount of expense I could not fund out of my normal monthly budget.

For us it was $1,500. Anything more than that would require saving in advance.

Your number will be different based on your income and discretionary spending.

Step Two

Step two was to open a SmartyPig account, which takes monthly automatic withdrawals from our checking account and sends them to subaccounts based around our goals. We have 2 subaccounts – European Vacation and Tuition.

You don’t have to use a special service to do this. Even a coffee can and cash will work. The great thing about an automated service is that you don’t have to do anything other than make sure the money is in your account on withdrawal day.

Simply take the expected expense and divide it by the number of months until you have to pay it. That is the amount you would set aside each month.

For example, if you want to prevent Christmas gifts from derailing your debt payoff plan, decide what you want to spend. Let’s say $1,000. We have roughly 8 months until the money is needed, so $1000/8 = $125.

This is what you should have taken out of your account automatically each month.

By breaking it down to the bare minimum monthly saving, we are reducing pressure on our overall budget and making the expense more manageable.

Thinking Long Term

As you may have suspected, this Rule has more than one purpose. In addition to making sure you aren’t demoralized by getting knocked off your debt payoff plan, this Rule also forces you to think long term about your finances.

If you had been living a life of spending more than you earn, accumulating more debt each month, and generally living paycheck to paycheck, thinking more than a month ahead could be a big step for you.

Achieving financial freedom is about controlling your money.

Think about it. When you are in debt you don’t control your money. You don’t control your paycheck. Numerous others have claims to your check. You must give them a portion of it each month.

Since I was 18 I have never controlled my paycheck. I am looking forward to that day when I’m truly debt free.

I’m going to frame that first paycheck, just like when you are a kid and you earn that first dollar.


10 Rules to Eliminate Your Debt and Change Your Life

1. Combine Incomes, Finances and Efforts 

2. Spend Less than You Earn

3. Make a Monthly Debt Budget and Live by It 

4Pay Off Debts Smallest to Largest, Regardless of Interest Rates

5. Make Big Changes for Big Results 

6. If You Don’t Need It, Sell It 

7. Save Monthly for Large, Anticipated Expenses

8. Set Aside Some Money for Fun

9. Pay Off Debts Before Investing 

10. The Goal of Work is Retirement 

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32 thoughts on “Save Monthly for Large, Anticipated Expenses: Rule 7

  1. Something important to add that I didn’t see in your article, is always expect the worst. This doesn’t mean that you should have a pessimistic attitude toward your finances. It means that you should look at your anticipated expenses in a worse case scenario or always round up. This way you will always be prepared, and often times you will be pleasantly surprised by extra money that you didn’t expect.
    Mike@Investing in Silver recently posted..Austrian Silver PhilharmonicsMy Profile

    • That is a good way to approach things, long term. Thanks for your comment Mike. I’m a fellow silver enthusiast, too.

  2. Its good practice to Save for large anticipated expenses.A friend of mine save every month for his daughter college education. He invests that amount in Mutual fund in order to beat inflation

    • That is nice he is doing that. I don’ think I’ll have enough money to do that, so like Mike said, I’ll tell my kids to prepare for the worst 🙂

  3. I love the application of this rule in our financial management! We have 8 targeted short-term savings accounts, and anything anticipated over about $10 comes out of there. Seriously – if we go see a movie it comes from our Entertainment savings account. The accounts actually free me up to spend more money because it relieves my anxiety about whether or not we can afford something discretionary.
    Emily @ evolvingPF recently posted..Does the Source of Gift Money Matter in Spending?My Profile

  4. I was using this process to save up for a wedding, but at the same time was trying to pay down a huge student debt load. One private loan in particular had a 10.75% interest rate, and I realized I could get rid of that loan 6 months faster if I put all my funds toward paying it down. The wedding money didn’t gain enough interest sitting in my savings account.

    • I might be in a similar situation as you, as my bosses are being assholes about approving my vacation request. I might have more time to save for it than I thought if I end up going later in the year.

      Thanks for your comment!

  5. Sometimes, I decide to be idiotic and conveniently forget that tuition is coming up. I know in the back of my head that I’ll have to pay for it, but it’s so much funner to make extra debt payments or throw money into my retirement account. At the end of April, I’ll have to find money for tuition from somewhere, I’m just not sure where. I need to take a page out of your book and save up monthly 🙂
    Daisy recently posted..March Spending and Net Worth UpdateMy Profile

    • I was like you, trying to fool myself into making progress. Then I had to take some money back from debt payment and I felt kinda silly. I guess another aspect about this post is being honest with yourself about your money. It’s crazy that money can make you lie even to yourself.

  6. Amen to that. Taxes got us this year. A few things had changed and we forgot that we weren’t getting a refund this year, but instead owed $2000! We dipped immeidatly into the emergency fund and were completely demoralized because of it. All that saved money, gone in an instant! Next year though, we’ll be ready, but putting little bits of money here and there into our “for taxes” account!
    TB recently posted..The Shit Hit the Fan…LiterallyMy Profile

  7. I’m really going to have to start doing something like this. Since I make money from my own side business, I always owe a big chunk of money at tax time. For some reason I don’t keep that in mind throughout the year. Suddenly I’m hit with a big tax bill and have to dip into my line of credit or savings accounts to cover it.
    Modest Money recently posted..Outsourcing Online Business Tasks To Earn More MoneyMy Profile

    • You might try just sending 40% of each payment immediately to a ING or SmartyPig subaccount. I try to pretend like I really only made the after tax amount, and I treat my salary as after tax – and the refund as a bonus!

  8. This truly is one of the things that changed my life. Before I struggled to deal when I had to renew my bus pass, when the power and phone bills and insurance bills all arrived at once, when car repairs finally came due. I can’t stress this enough! However you do it – a separate account or just a line on your spreadsheet that acts as a slush fund for these regular/semi regular expenses – budgeting for them is crucial.
    eemusings recently posted..It’s your job, but what does that actually mean?My Profile

    • Setting aside something each month is a good way to change your mindset and force you to do something you’d rather not do – thanks for your comment!

  9. This month I’m saving $350 for one of the vehicle registrations and inspection, which will be in June. The car may need some maintenance too, which won’t be as bad since I’ll have that registration already covered.

    • Those registrations always ding me because I can never remember when they are due (I guess I could look at the sticker on my car to know but I always forget). Thanks for your comment!

    • I have about 20 nieces and nephews so I know what you mean about birthdays. We have one or two every month so it has basically just become a monthly expense at this point.

  10. I’ve been using this method for a couple of years now to pay my annual professional fees (my work no longer pays them for me). It also worked well to save up for our once in a lifetime family vacation this past January. We still spent a little more than we saved, but we saved more than 75% of the total cost!
    Kris @ BalancingMoneyandLife recently posted..Feeling OverwhelmedMy Profile

    • The amount we are saving for our trip is pretty large, but I’m pleasantly surprised how easy it was to save it. We did it by carving deeper into our food budget, which is gonna make it so much more fun. Thanks for reading!

    • Hey 101 – count me as one of those people who aren’t saving for another vehicle. I know I need to, but I guess I’m being too optimistic about the future of my current vehicle. Once we are debt free minus house in 4 months, I’ll probably switch some of my saving to a new (to me) car fund.

  11. Thanks for these tips, John. After writing this comment I am going to subscribe… I think I could learn a lot from you!

    I’m currently in a pretty bad financial situation. However, it is all my fault. I am depressed and I hate my life at the moment.. I am living week to week. My problem is not that I earn to little – its that I spend to much. Buying things makes me momentarily happy. A few months ago I bought a brand new iPad and laptop computer – not outright, but on payment plan contracts. I could not afford them, but they made me happy for a few weeks.

    I’ve just recently come to the conclusion that I need to sort out my problems. This week I finished paying off my $5000 credit card debt, and I have $1500 in savings. However I still have a lot of debt to pay off, including a $20,000 car loan for a car that costs me $90 of fuel each week!
    Ryan recently posted..Is A Blog Right For You? 6 Questions To Ask Yourself Before You Start BloggingMy Profile

    • Hey Ryan, I am glad to hear that you will be subscribing. This site is a place where people can get help and ideas WITHOUT judgement. I’ve been in your shoes before and know what you are feeling.

      I came to the same realization as you shortly after buying a $25,000 SUV. To dig yourself out will take a long time, but it is worth it. If you haven’t already, take a look at my 10 Rules series in the left sidebar.

      If you have any questions or ever wanna bounce something off someone, please don’t hesitate to email me through the Contact page in the left sidebar.

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