Thursday, November 1, 2007

Added a new fund to our finances

After recently purchasing an automotive part for a minor car repair, it dawned on me that I am missing a very important fund in my personal finance system. The part was only $70, but it could have easily been $100-200, or in the case of a dealer-only part, in the $200+ range. A $200 unexpected expense could not be easily absorbed by our already tight paycheck disbursements. In other words, we don't have $200 of discretionary spending each paycheck (since all discretionary dollars are thus spent during week following the paycheck) to go buy car parts with.

I already have a scheduled maintenance calculator and savings fund for the cars. This includes things that are easily timed and their costs more or less fixed. I know how many times the vehicles will need oil changes, and how much it costs (the price of oil and filter vary very little), so I know how much to save. And it is, of course, expected that something in the car will break down eventually, so this is something that I should be planning for - not something that comes out of our emergency fund. It's not an emergency if I know it's going to happen eventually!

So I created an "Unscheduled Maintenance Fund". It will cover the cost of minor repairs to our vehicles and our home. To determine how much I should contribute to this new fund, I gathered the receipts for all our repairs in the last year and divided by our number of paychecks in the year. This amount will be added to the readjustment account payment and isolated in a separate account (in fact, an ING savings account that I've been toying with ideas about what to do with).

Viola, problem solved. When something breaks in the house or with the cars, we'll have a little stash of money to cover it without wiping out our discretionary dollars or dipping into our emergency fund.

1 comment:

Mrs. Micah said...

Excellent choice. I've heard such a fund called an "emergency cushion." They're a great idea in my book, especially after the emergency fund is funded (or even a little by little while funding it).