My current savings plan isn't working as well as it should, as I discussed in a recent post on savings accounts. Currently I have one savings account, I deposit a huge chunk of money into it each month, and I pull money out regularly for everything from annual property taxes to shopping sprees and vacations.
Therefore my "emergency fund" never really grows, and I don't track my progress - or lack thereof - towards any specific short term savings goals.
After asking for reader input, I've decided to open an INGDirect savings account and divide it into the following sub-accounts: Giving, Fun (i.e. Travel and Shopping), and Car. I will keep my Vanguard Prime Money Market fund as my Emergency Fund. and for Irregular Bills - namely property taxes and insurance premiums.
I'll start July with 3 months of expenses in my EF (after taking out a chunk to make a loan payment to my grandfather) and $1,000 in Giving, but I'll be starting from scratch in Fun and Car (I've already spent my Fun budget for the year anyway).
The primary tenants of my budget will stay the same - 10% of my salary goes for retirement and 10% for emergencies. That is never meant to be touched, but the rest of my "savings" is really money set aside to be spent sooner or later.
Here's the plan:
- Save 10% of my salary for Emergencies (VGPMM).
- Additionally, save exactly the amount needed monthly to cover annual property taxes and insurance premiums (VGPMM).
- Save 5% of my salary for Giving (ING).
- Save 3% of my salary for a future car purchase (ING).
- Save 2% of my salary for Fun (ING).
I know what you're thinking: $120 a month isn't going to buy me much of a car, even if I save for years, and $80 a month falls far short of the current $500 a month I'm spending on shopping and travel (annualized).
Ah, but those savings figures are only from my paycheck. I do have other sources of income. These include a bonus (payable monthly), annual tax refund, periodic monetary gifts (Vegas trips with grandmother, holidays), and other small trickles like amazon sales , blog income, and prosper payments. In the past I was simply spending or saving that money with no plan, but not anymore!
Here's my plan for Irregular Income:
- 70% will be saved for Fun (ING).
- 20% will be saved for Car (ING).
- 10% will be saved for Giving (ING).
Currently I am taking home around $500 a month in bonus, and that figure should really never dip below 10% of my salary (unless I'm really performing poorly at work, in which case I'll have bigger problems than no travel fund).
So when you combine my regular and irregular savings, according to my calculations I should be able to save the following amounts each year:
- $6,000 for Emergencies
- $4,225 for Giving
- $8,140 for Fun
- $3,497 for Car
4 comments:
I'm a fan of earmarking savings -- your new plan looks great. Good luck!
Where/who does your "giving" go to?
This sounds like a very reasonable plan. Have you considered contributing more than 10% to your retirement/401(k)? I realize you already have a substantial asset base, but there is only so much tax deferred space allowed per year, and if you don't take advantage of it, you lose it forever. I thought it might be less painful since you have the income from your rental properties. Just a thought.
@ Anon 1 - $50 a month goes to the Dallas area United Way, but otherwise it varies greatly. One year I used most of it for a volunteer trip to Peru, one year I gave a chunk to a cancer support organization called Gilda's Club because I was particularly moved at one of their fundraisers, one year I sent a bunch to Louisiana in the wake of Katrina...
@ Anon 2 - I have considered bumping up my retirement contributions; in fact they've been higher in the past (I bumped it up to 20% for a few months after the market tanked last Oct). In addition to the 10% Roth 401k contribution, I max out my Roth IRA each year by transferring taxable assets into it. But I feel that beyond that I really need more liquid reserves than retirement savings due to my rentals and everything else. But I hope one day to be maxing my retirement accounts and saving plenty in reserves as well!
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