Preparing for Future Expenses

What a lovely weekend it was here in Oklahoma! It was just perfect fall weather: cool, with clear blue skies, and no wind. It was such a nice weekend for my family because we were able to play outside, and just relax and take the weekend off. Noah got sick again last week and we had to keep him out of school for most of the week. So this weekend I also sterilized everything in my home, and washed all of the linens, and just cleaned everything. Noah is finally better and will be returning to school on Monday and I am just so excited to be done with sickness.

Anyway, over the past few weeks I have received a couple of questions through email that I haven’t had time (or energy with being sick myself) to answer. So this week I am going to try to answer those questions on my blog. They are questions that I am sure many people have and hopefully the answers will be helpful to you as well.

Jessica wrote me with the following question:
“I have been reading your blog for a few months. I love it. I was searching and couldn’t find anything on how to save for larger expenses that don’t have a definite date for replacing the item. For example, a furnace, we will just use it till it stops working. The heating guy said 1 to 5 years to expect to need a new one. How would one go about saving for something like that?”

I love this question because it means that she is already thinking ahead (and if her furnace looks anything like the one in my picture, she definitely needs to be 🙂 ). It is very difficult to be motivated to put money away now for something that seems so far away, yet it is such a smart financial move to do so. Matt and I have done exactly this on many occasions, most recently for the writer’s conference that he attended. But truly saving for a major purchase such as a new furnace, tires for your vehicle, major auto repairs, co-payments for elective surgery, dental work, home improvement projects, etc is all done the same way.

The first thing to determine is an estimate of when you will need the money. The question for Jessica is, what will she do if she doesn’t have all of the money saved and needs to replace the furnace? If the answer is that she will have to put it on a credit card and pay interest on that money until she gets it paid off, then I would begin an aggressive saving plan to save for the entirety of the furnace as soon as possible. If she can cover whatever balance she hasn’t saved by drawing from a separate savings account or by another means then she might be able to relax her deadline for saving the entirety.

So let’s say Jessica’s furnace is going to cost $2000.00 to replace, and she decides that she would like to have that money within 2 years to cover the cost of a new furnace. Within 1 year she will have half of the money for the furnace and she decides that she will take a loan from her emergency savings account if the furnace should go out before her 2 year savings plan is completed. She can then continue to pay off the furnace by monthly payments to her emergency fund until the furnace is paid for.

So if you are saving for a similar project to Jessica’s furncae, the first step is to open a savings account specifically for that project. Or if you would prefer, you can just use your regular savings account but start a separate ledger (where you track your money) to specifically track your savings for this project. But if you use a savings account at a place like INGdirect (which I highly recommend), then you can even rename your account so that you know exactly what it is for.

The next step is to take your estimated cost for your project and divide it by your deadline for saving the money. So for Jessica she would take the cost of $2000.00 and divide it by 24 months which would be $83.33. She would then take her monthly budget and make a space in her budget for that $83.33. Now if you are on a “tight” budget this may take some effort, but remember there is always a way.

Recently, Matt and I needed to “squeeze” something into our budget and this is how we did it. We took a little money from our entertainment budget, and reduced our grocery budget by $10 and re-evaluated some bills to see if we could reduce them. I took advantage of a fantastic deal on diapers and stocked up, and so I was able to contribute part of my “baby money” that had gone to diapers to our project. Ask God for creative ideas to make it work in your budget. He really loves to be a part of your life, and He really does have all the wisdom that you need to make your budget work. Remember, every $5 helps and can contribute to successful debt-free living.

I hope this helps, Jessica. If you have more questions please feel free to ask. I do have another blog on this topic that you can read here. But I really do think it is wonderful that you are already thinking ahead and making a plan in your finances for the future. That really is what budgeting is all about.

God bless, and I’ll see you all tomorrow with a new question.