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Revolving Savings

by Ryan Law

I see two things ruin budgets on a regular basis: emergencies and known, but irregular (they happen once or twice a year), expenses. Emergencies should be covered by setting up an emergency fund, but the second type of expenses can be a bit trickier. Today I want to share with you the fund I use to pay for those known, but irregular expenses. I call it my Revolving Savings account. It’s a simple concept, but it works!

First, let’s identify what some of those known but irregular expenses are:

  • Holidays
  • Birthdays
  • Car Registration
  • Car Insurance (unless paid monthly)
  • Life Insurance (unless paid monthly)
  • Tuition and books
  • Vacations

Those are the most common ones that I see, but you may have a few other things that would fit in there as well.

The next step is to make a list of each month, then go through and plug all your known, but irregular expenses in there along with how much you are going to spend. Your calendar might look like this.

January February March April
Books: $300   Spring Break: $200  
May June July August
  Dad Birthday: $20   Mom Birthday: $30
Books: $300
September October November December
  Car Registration: $85   Christmas: $200

The next step is to add up the total – in this case the total is $1,135. You then take that $1,135, divide by 12, and you get how much you need to save up each month ($95). If that amount seems too high, you have a couple of options:

  1. Reduce how much you are spending on these categories, or
  2. Figure out a different way to fund some of the items

As an example of the second option you may consider times when you get extra money, such as a tax refund, to fund some items such as your Spring Break trip and Car Registration.

You then put that $95 in a separate account (I call this my Revolving Savings account) that you only use to pay for these expenses.

Each December my wife and I sit down and review the previous calendar and draw up a calendar for the next year. Not only does this make it less stressful as you approach each of these events, but you can actually save money by buying things when they are on sale. My wife and I did quite a bit of Christmas shopping for 2014 in January. We found a lot of great after-Christmas specials, which will help us stretch those dollars even further.

If you have major expenses that come up early in the year you may want to run your Revolving Savings calendar on a different schedule (i.e. July-June of each year instead of January-December). In the calendar above the person is going to need $300 in January, but only have $95 if they run their Revolving calendar from January-December.  If they ran their calendar April-March they would have enough money by the time they hit each expense.

As I said above, this is a simple concept, but it works!

Ryan H. Law, M.S., CFP®, AFC®
Personal Financial Planning Department
Office for Financial Success Director
University of Missouri Center on Economic Education Director

162 Stanley Hall
University of Missouri
Columbia, MO 65211

573.882.9211 (office)