If you follow me on Instagram or Facebook, then you already know that we had some hefty expenses over the past few months. We knew that we would need new tires soon and that we were living on borrowed time with our roof. We were just hoping to wait as long as possible before biting the bullet and spending all that money.
I don’t know about you, but those are not items that I enjoy spending money on. They are necessary though and unavoidable if you own a vehicle and a home. If you aren’t prepared for expenses like this, they can devastate your finances. You may even end up slapping them on your credit card or taking out a loan with exorbitant interest charges. In my mind, neither of those options is ideal.
I wrote a post last year about the benefits to saving up for incidental expenses. I still stand by that post and hope that you might give the concept a try, if you aren’t already. You can’t predict the future, but you can anticipate it.
In order to help us save for those incidental expenses, we set money aside each month into an account we have recently dubbed our “slush fund.”
What is a slush fund?
A slush fund account is where you set aside money for expenses that you anticipate having in the future. This is different than an emergency fund, since that money is designed to be used only for catastrophic events (ex. job loss, huge medical emergencies, etc.).
While a slush fund is not your emergency fund, it still acts as a buffer between you and Mr. Murphy.
Getting Started
With most things in life, getting started is usually the hardest part. If this concept is new to you, then it will likely mean a change in behavior. It can sometimes be hard to get on a new bandwagon if you are set in an old habit or way of doing things.
1. Choosing your categories
Find a time to sit down and brainstorm what expenses you might want to include in your slush fund {include your spouse if you are married}. Take a look at your monthly budget categories and think about your upcoming expenses. You might consider dividing them up this way:
- Routine expenses {ex. school tuition, insurance premiums}
- Projected expenses {ex. medical/dental co pays, larger home/car repairs}
- Special savings {ex. new tires, new computer, newer vehicle}
At this point, our slush fund includes: home repair, car repair, vacation savings, preschool tuition, and medical expenses. {I’m going to add in Christmas when we budget for August, so that I can start getting into the habit of saving all year for it.}
Note: At the very minimum, I’d recommend car and home owners to set aside at least a little bit each month for larger car/home repairs. Even if your car and home are newer, putting a little aside each month will help you be ready when you do need to make repairs.
2. Decide where you will put the money
Once you have an idea of what you should be saving for, you’ll need to figure out the logistics of where you will put the money. Think about what type of account you’d like to use and what bank.
We opted to use a basic, no frills, checking account at the same bank where we have our joint checking account for bill paying. This allows me to transfer the money over each month with the click of a button. If you are tempted to “steal” from your slush fund, then you might consider using a different bank. Do what works for you.
3. How much to save
Now that you have your categories, you’ll need to decide how much to save each month. It should be fairly straight forward for your routine expenses. Since you know what the expense is, just divide the total bill by the number of months you have to save.
If you are putting money aside for projected expenses, just estimate and then divide it by the number of months you have to save. You can probably look at last year and have a pretty good idea of what you might need to save.
When saving for specific items, you might also need to estimate. Unless you have a quote in hand, you might be making a ballpark estimate.
Even if your budget seems stretched already, I think you’ll find that setting aside even small amounts for some of these foreseen expenses will actually help alleviate some of the stress of your monthly budget.
Do you have a slush fund?
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