I just wanted to discuss my method of saving for different things (different buckets).

I don't think I have the easiest or the best method. But just wanted to share for anyone curious. & to clarify for any blog readers.

Of course, I try to keep a minimal amount of accounts/savings goals. It would drive me nuts to save for like 10 little things. I don't see the point of being so exact. (Much of my philosophy comes from being an accountant. Simpler is good, and being exact is often a waste of time. As long as I am close!). Likewise, I track everything in excel and I probably find it quite simple in an accountant kind of way. I am sure this may be a bit complex for non-accountants. But to me, it just makes sense.

I guess the first thing I have done is defined my savings buckets. Instead of cars, vacations, insurance, and specific things, I divide my savings buckets as follows:

*Short-Term Savings
*Mid-Term Savings
*Long-Term Savings
*Retirement
*Medical Savings
*Emergency Fund

Short-Term Savings

I started this fund last year and added up all of my insurances and property taxes, and divided by 12. I actually came up with a whopping $800/month (rounded up a bit) and found after a full year that it was quite sufficient. I pulled money out for some smaller things throughout the year.

So this year I am adding $1k/month to this fund. It's a work in progress, but I feel like I am about there (with getting this figured out). I am tending to pay all one-time bills, no matter how big or small, out of this account. This year I added subscriptions and auto registartion, etc. Just little stuff like that - I had plenty of room in the $800/month. The additional $200/month is for vacations, car repairs, and christmas expenses, etc. All the stuff I reasonably expect to spend in the year, but that come generally only once or twice a year. In my head I am thinking, approximately $500 for christmas, $1k for vacation, etc. I don't track each expense much beyond that. We always do vacation and christmas budgets though. So we know we aren't going to suddenly spend way too much this year and blow our savings out of the water.

This fund needs to be $1k on January 1 to fund all of the early year expenses. So if I have any money left at 12/31, over $1k, I will transfer it to retirement or other savings (the excess). Last year was year 1 with this method, and we drained the account to $0 come Christmas. So we took $1k christmas cash to give it a kickstart for 2008. (I'd prefer not to do it, but it's our backup plan. It works).

Mid-Term Savings

We have always paid cash for our cars. However, we have historically not paid much for our cars OR we had a hefty second income to pay for them.

Likewise, we have never spent a lot on house repairs/appliances, etc. Certainly not since we have been on one income. Part of our goals was to buy a newer home that needed little work, so we could save for maintenance in the long run. I know this is not a fool-proof plan. But we have been in this house 6 years and have put hardly any money into it. So I would say it has paid off for us.

Anyway, without the second income we were used to, and wads of cash, we had to come up with a plan. So we are trying to save up $5k/year towards our next car purchase and for things like house maintenance, painting the exterior, replacing appliances down the road, etc. I'd say ideally 50% of this is car fund and 50% of this is house fund. IT may have more to it in the future (other expenses/goals), and ideally we'll add more as well. But we keep this money liquid, in cash, and it's a start for us.

We are funding it right now with interest earned off of our emergency fund and other cash. We are also funding it with overtime and windfalls. Overtime and interest equates to about $5k/year, so where we started.


Long-Term Savings

We don't have any money in our long-term savings right now. I think mostly this is money we save that can not be put in an official tax-deferred retirement account. Any money we save beyond official retirement, we have discussed using for college, for early retirement, for enjoying more (nicer vacations? nicer toys?) and/or a contra-mortgage account. We think about how if dh returns to work we will be able to save way more than our retirement plans allow, and where this account comes in. Likewise, with future raises and all that, it's still quite a possibility on one income.

But for now, it's just a dream.

Retirement

Retirement is an easy bucket to keep track of. For now it is 50% in ROTHs and 50% in my employer's plan. But it's all our tax-deferred, aggressively invested investments.

We try to invest a minimum percentage of income, and consider windfalls for maxing out.

Medical Savings

I know, I know. I don't want a lot of buckets. But we switched to a HDHP this year, and our premiums lowered by $250/month in exchange for a $3k deductible. $250 x 12 = $3k, so we have been saving the difference to fund the cash on hand to cover our deductible. In an IDEAL world we will get this to $3k and just tack it on to our emergency fund. If we get to that point, we will divert the $250/month savings elsewhere. Retirement or mid-term...

We are only 4 months into this health plan, and I think we have spent all the deductible we have saved. So this medical savings may be around for a while. I dream of diverting some of that money and saving it. Maybe getting ahead.

Reality is we'll probably spend our deductible every year.

Emergency Fund

I almost forgot the emergency fund. Which is good. I don't really consider it part of our liquid savings, and don't think much about it.

The emergency fund is 3 months of expenses saved up in cash. I actually keep some of it in a ROTH. We always keep a minimum of $5k in the liquid cash account. The rest is in the ROTH, for now. When we have more money, sure we'll keep all of our emergency fund in cash. For now, I couldn't give up the 2007 IRA contribution, so we diverted it to a ROTH. That part of the emergency fund is like out of work for months or house is destroyed, kind of emergency fund. Those are really the emergencies we consider. Likewise, we find the odds extremely slim we would touch it. (My job is quite recession proof & I could hardly see any reason to be out of work more than a day with the current CPA shortage). So why we came up with just 3 months expenses, and why a lot of it is in our ROTH (in cash of course). Likewise, in tough time, a 0% loan from our parents (or low interest rate) is a pretty viable option. It's a big reason why I am not big on oodles of cash right now. Our family has decently deep pockets.

Oh, and I do have to add we have adequate disability and life insurance, etc.

For now though, the efund is doing double duty until we can build up our mid-term fund now. If we had a large expense tomorrow when it came to the car or house, we would have to dip in the efund. But with time we are getting past that. Likewise, with time, we will put more in our efund. For now, it's at the bare minimum I feel it needs to be, and I feel we have bigger fish to fry.

& so that explains all of our different savings buckets.

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Now, how do I track all these? Well the retirement fund is self-explanatory - those are all in their own accounts.

For the rest, I track them in excel.

I have a spreadsheet for the short-term savings. I add in my $500 every paycheck (for $1k/month) and then deduct all the short-term expenses out, as they come due.

Ideally I keep this in the low-interest savings linked to my checking account up to the first $1k, and then if it starts to accumulate, I transfer additional amounts to my online savings (higher interest).

For the emergency fund, mid-term and medical savings, I just track it all on one spreadsheet. I don't know why, just how it evolved. They are all more long-term savings, and I don't want to track 5 different spreadsheets.

But I just enter all the additions, interest every month, windfalls added, and $250 monthly medical contribution, minus any medical expenses. Then I subtotal each fund on the side, and make sure it equals the ending balance on my register.

As far as reconciling all my accounts, every month I just add up all my cash savings in my spreadsheets and make sure it equals all my cash savings accounts. IT it is close, wala. Once or twice a year I adjust it to my actual cash balance. (Will generally get off with small interest amounts that I don't track - like the 8 cents a month I earn on one small savings account).

& that's about it. It works for me, because I am pretty vigilant about reporting everything on my spreadsheet as I enter it in Quicken. So I have to say it is pretty rare when I miss something. Likewise, this method could be a nightmare to reconcile otherwise. But for me I don't spend a lot of time on it.

Likewise, I do use Quicken to track all of my finances.

Since I have a lot of buckets I am saving for monthly, and pulling money out of monthly, I do not make a transfer for each and every item. Money market accounts only allow you so many transfers a month, and I am afraid I would be way beyond.

So I enter everything in Quicken separately. $500/month to short-term savings with each paycheck. $250 to medical on the last day of each month. I actually have the balance transfers thrown in to complicate things. So I pull the money from savings to pay down the balance transfers (separate entry). & then I enter the reimbursements I need from the medical fund and the short-term savings, for these bills as they come due. All of this was a good 8 entries for MArch, for example.

Instead of doing 8 transfers, I try to date them all around mid-month and end-of month. I add up all the mid-month transfers, and figure out the net - if I need to pull money from savings, or transfer some in. Whatever the net is, is the transfer I do to/from my savings account.

I do the same thing at the end of the month.

Wala.

I like this method too because if I did forget to enter something in excel, I guess it wouldn't be too bad to reconcile. I try to record everything in Quicken as a separate item. Likewise, all my Quicken reports are in great detail. It is pretty easy to reconcile everything in Quicken as well. I imagine if I was reconciling my cash accounts by hand, that this could drive me nuts. But reconciling is usually just a click of the button (or 2 or 3).

I also have all of my regular savings transfers set up in Quicken. They pop up every month, so I won't forget them. I actually generally go through the first of every month and pay all the bills, enter all my paychecks for the month, and enter all the regular savings/retirement transfers (pay myself first). So though it may seem like a lot to remember, there isn't a lot to remember. Quicken remembers for me. I chose $1k/month for my short-term savings because it was easy, more than any other reason. I mean it covers everything, but I rounded up considerably for easiness.

This way, it is kind of a complex system, but it is actually pretty simple in execution.

However, as an accountant, I have to say a plain old paper/pencil system doesn't cut it for me. I like the advancedness (is that a word?) of something like Quicken, coupled with its ease of use. & that is certainly the accountant in me. I want to easily manipulate all my data and generate reports any which way with the click of a button. & I appreciate the time savings of an electronic system. Since most of my entries every month are recurring, it really doesn't take more than a few minutes to pay all my bills every month and track them in Quicken.

Anyway, this is a long entry, so I will share snapshots of my excel sheets, in my next post.

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I just had to add too, we used to be great savers, but we had no method to our savings. I think a lot of it was we were saving for either very specific things (down payment on a home) or very unknown things, like a cash cushion for life on one income and with maternity leaves.

Likewise, in the past we had a lot of cash and savings, but didn't use it as efficiently as we should have. Not a lot of long-term planning - beyond the tomorrow. IF we had, I really think we would have much more cash remaining today.

So, I just had to add this method has made life tremendously easier. Every dollar has a name, and it makes budgeting easier. There is also a bigger, more long-term, complete picture to all of our savings. & well, that makes a lot more sense.

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ETA: I just had to add that I have heard of Quicken Virtual subaccounts and I personally find them WAY too complicated.

Likewise, I saw this post which did give me an idea:

http://www.thesimpledollar.com/2007/07/17/several-funds-one-...

I think this was makes way more sense. I have to rework my spreadsheet, but makes sense. I actually do this on my investment accounts already. So I Can track contributions and performance separately (dh's and mine) but also look at the "big picture" total.

Duh, why didn't I think of that for my cash accounts?