Our Micro Accounts: How we save for expected expenses

A LONG time ago, I wrote a post on our cash envelope categories and what works for us.  At that time, I promised to post about our micro accounts!  This is that post. FINALLY, right?

Let’s recap.  I’m writing these posts to demystify the topic, not because I think I know everything or because we are doing it all right.  I’ll be the first to tell you that we made some poor decisions back when we were DINKs (double income, no kids) and we have major regrets that we hope others will learn from.  Perhaps I’ll post about some of those some day (nothing life shattering, but stupid, nonetheless).  Basically, we know that people have a hard time talking about money, which really sucks when you are trying to get a handle on your finances and you have NO idea where to start.  Why does it have to be so secretive?!  I mean, seriously, people?

You could make your life a ton easier and just take a Financial Peace course at a local church like my sister and her hubby did.  I’m so thankful they took that course, because my sister shared her knowledge with me and started us on our debt free journey.  I have not taken that course, but I did read Dave Ramsey’s Total Money Makeover book and it was pretty inspiring. (You can probably pick one up at your church library, public library or Goodwill.)

We don’t follow everything Dave recommends, but we do like a lot of what he says, like the parts about getting rid of credit cards, using cash for all of our everyday expenses and planning for expected expenses.

For example, Mitch has a business credit card that he keeps with him, but our personal credit card (just one) is frozen in a cup of ice in the freezer.  We just don’t need it.  Ever. We have debit cards if we ever need to use one for some reason (car rental, online shopping, airplane tickets, etc), but otherwise, we are off the monthly-credit-card-use-hamster-wheel. FREEDOM. Truly.

That is all due to our use of the cash envelope system, which I’ve written about at length.  Go read about that.  I’ll wait.

We use online bill pay to pay for monthly expenses like mortgage, debt payoff, insurance, utilities, tithe and offerings, etc.

We regularly contribute to our retirement accounts (right off the top of Mitch’s paycheck and at tax time) and have a lot of life insurance (term and whole life).

And now for the micro accounts:  This is just what works for us, and hopefully it will spark some ideas for you.

Two years ago, we fully funded our little emergency fund account ($1000). We have never had to dip into it (thank you, Lord!) but if there is ever a true emergency, then it is there.  Needing a new microwave because ours broke is NOT an emergency (although it might have felt like it at the time).  An emergency must be serious business.

Last year, we made it a priority to fully fund our Health Savings account.  Our family health deductible is $2000, so we funded it up to $2000.  We do sometimes have to dip into it to pay doctor’s bills, but we immediately work to build it back up again by depositing $50 a month until it is fully funded.  These two steps took a load of stress off.

After that, we started setting aside money for expected expenses.  These are things that we know are coming, but they used to “sneak up” on us, which is pretty ridiculous, but it is what it is.

For example, we pay our entire homeowner’s insurance payment every February.  It’s a chunk of money that used to STRESS me out, but these days I save $100 a month for homeowners insurance.  Our homeowner’s insurance is much less than that, but last year I undersaved, so this year I popped it up to $100 so that we would have cushion. I like security.

We have a Home Maintenance budget category on my micro account spreadsheet that we contribute $50 a month toward.  We don’t live in a fixer-upper, but there are always things breaking and projects needing to be done, so we budget for it.  I want new bark dust this summer, and I just realized that I have the money saved!  Wahoo! {doing the happy dance!}  You know that microwave emergency? The replacement money came out of the Home Maintenance account.

Next is Vehicle Registration, which I totally over-save for.  I can’t remember how much it is, but I save $15 a month so that when registration comes around I’m ready to go.

Our Car Maintenance fund gets a bit of a workout.  We have two 15+ year old vehicles, and they are falling apart.  My Jeep doesn’t have air conditioning and Mitch’s truck doesn’t have heat.  So, we drive the family around in the truck in the summer and in the Jeep in the winter!  LOL!  They still run, thanks to regular oil changes, and if they ever need tires, I’m ready for that expense.  We save $50 a month for this fund.

We love to get our kids gifts, but birthdays and Christmas used to be so stressful.  We were never big credit card users (when it came to extravagant expenses, just life-sustaining expenses), so we didn’t rack up birthday or Christmas debt, but we didn’t buy our kids much, either.  TRUE, Christmas isn’t all about the gifts, but when you love to give, it’s hard to not be able to do that.  These days, we save $50 a month for Gifts.  Discovering Swag Bucks was HUGE for my family, though.  If saving for gifts isn’t gonna happen for you, consider earning $5 Amazon gift cards, just by switching your search engine to Swag Bucks.  One year, I racked up $475 in Amazon Gift cards using Swag Bucks.  I did use about $200 of those for an “emergency” household expense, but that was totally cool with me!  :)

Our final category in our Micro Account is Vacation.  Our family vacations are usually weekend camping trips, a night at the drive-in movies, a day at the aquarium, a trip to visit my brother or sister, etc. Sometimes it’s, “We overspent at Thai food. Ah! Vacation budget!”  Don’t judge.  That’s how we work!!  LOL!  Seriously, though, we just went on a one week vacation at a timeshare in Lake Chelan, WA that was donated to us, and it was AWESOME to pull out $500 for gas, food, entertainment, eating out, etc.  I have never been THAT relaxed about money on a vacation before. I highly recommend saving and paying cash rather than using your credit card.  We save $100 a month for vacation.  I realize that if we’re ever going to be able to take our kids to Disneyland, I’ll need to increase that amount, but I guess I’ll have to reevaluate that, now that I’ve paid off my student loans!!  (Had to plug that. It’s just SO amazing to me! Hee, hee!)

Now, logistically, how do we manage these accounts?  I know I’m old school, but I work with a spreadsheet.  There are online savings accounts and various types of software available for micro accounts, but I’m confident in my spreadsheet, and it works for me.

We get paid once a month on the 15th, so when I deposit our check, I take our cash out for our envelopes, then go home and use online banking to transfer a chunk of money from our checking account to our savings account.  Then, I open up our spreadsheet and enter the amounts in each of the categories.  This is a screenshot of our monthly micro account.  Click to enlarge it. (Oh, the transparency! You guys should really be thanking me for putting this out there!  I feel sheepish. This is awkward.)

Notice that along the bottom I have the links to the other savings accounts. We actually have one checking account, and two savings accounts that I can access through online bill pay: one is our emergency fund and the other is this micro account which is a money market account.  We also have our Health Savings Account through State Farm Bank.

You’ll also notice that there is a lot of money in our micro accounts.  A lot for us, anyway.  Most likely, we will not use all of the money in these accounts, so in December I’ll transfer all but the bare minimum over to another category that we’ll call vehicle savings.  This is how we built up our HSA.  It hadn’t been fully funded until we transferred excess from our micro accounts into the HSA last year.

Let me just continue to say that we do not have it all figured out, and we do still have ginormous HELOC debt, but we definitely feel financial freedom because we know where our money is going and we have a plan.  We won’t be overwhelmed by an “unexpected” expense that we didn’t plan for, thanks to our micro accounts.

And, I also feel the need to tell you once again that we are a family of four, and we make a lot of sacrifices to be able to save, spend and give in this way.  Every family is different, and what works for us may not work for you.  You might make significantly more or less than we do.  Our point is to simply show you what is possible and help you to get your thinkers thinking.  We had many years of scraping by (or, not scraping by, but just crying our way through it and trying to breathe in and out), so we can sympathize with those of you who look at our spreadsheet or our cash envelope categories and feel hopeless.  That’s how I felt when my sister shared her spreadsheet with me.  What I learned is that the needs of her family (of eight) were VERY different from my family, and that I could do something to help make up the deficit between what we spent and what my husband brought home in his paycheck by cutting back on our grocery budget and cooking from scratch.  SACRIFICE doesn’t have to be devastating.  It can be empowering.

Yes, it does help that I have been working on building up my businesses (creating new income), and for that I am incredibly grateful to the Lord.  He opened up opportunities for me and gave me ideas that have eventually paid off for our family, allowing me to bring in a wonderful little income that has been instrumental as we continue to pay off debt.  Perhaps another post?  I’ll have to think about that!

Let me know if you have any questions in the comments.  I’ll let you know what works for us!

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