Friday, July 6, 2007

Setting up a readjustment account

I am a firm believer in what I call a readjustment account (maybe I need a catchier name?). It's really a simple concept; you have a separate account (preferably an interest-bearing checking or savings) that you fund each week. Say you have a $500 car insurance payment every 6 months. You have lawn service for $60 every 3 months. This is a total yearly expense of $1240. You divide this by the number of paychecks, in my case 4 per month...$25.83. That's my readjusted bill that comes directly out of my paycheck every week.

Add all the other irregular bills to the system and you end up with a nice chunk of your pay (I personally have $83 a week going into my readjustment) set aside for upcoming bills. When the bill comes, I pay it out of the account. The beauty of adding many different bills to it is that even if I don't have a full 6 months saved up for that insurance bill, there is a pool of money from all those other bills, so it levels out and the money is there.

The more bills I can set up to pay on a non-monthly basis the better, because that big pool of money is earning interest for me while it waits to get zipped off to some company. Instead of stressing over my insurance bill, I can happily pay it knowing not only does it not affect my regular monthly budget but I've actually earned money on the payment I just made.

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