I've decided freedom accounts are a wonderful thing.
I first read about the concept in Mary Hunt's The Complete Cheapskate (a great online explanation here), and though I've tried to use them before, this is the first time it's actually working. (Before, I wasn't committed to funding them, or I tried to create too many separate accounts and got quickly overwhelmed).
I've been using them for this last month, though, and the concept really, really works! Each paycheck I withdraw even a small amount of money and set it aside (I'm using both Excel and savings goals in Quicken to track contributions and withdrawals). I started with just six accounts (which is actually a large number - I'd recommend starting smaller), for both irregular expenses (Medical, Pet, Auto Service and Repair, Home Repair) and specific upcoming expenses (Christmas, Savings). By the way, the Savings account is just a way of setting aside money until I have the minimum balance I need to open a savings account without paying account fees - I'll be there by the beginning of next week.
I've already seen these to be useful. I jump started the Auto Service and Repair account with $300, because I knew I needed to replace the tires on my car. When I did replace them last week, the money was there, ready and waiting. My savings for Christmas expenses is steadily growing. And today, when I needed to call a H/AC technician to deal with my heating problem, the money was there to pay for the call (I had to jumpstart this one, as well).
A good financial tool, and once in the habit, not really so difficult to manage. I like that!
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I was skeptical at first, but now I'm a big believer in the Freedom Account concept. (The name's a bit hokey, but I can live with it.)
ReplyDeletePeople have asked, "But I already have an emergency savings account; what's the difference?"
The difference, IMHO, lies in the fact that the e-fund is there for unexpected items (read: emergencies), while the Freedom Account is there for expected items with perhaps non-specific timing. (Car repairs, home repairs, Christmas — you know they're coming, so you might as well be ready.) It's more of a concrete, planning-based account.
One thing is certain: It is so nice to have that money ready and waiting when things come up ... as they inevitably will. So keep that account going. You'll be glad you did!
It's Your Money!