Money Forward

This blog is about money and trying to keep my money from flying out the window.

Friday, November 03, 2006

Necessary Expense Account - How to deal with unexpected expenses?

A post from Matt at To One Million and Beyond reminded me of a post I was thinking about.

Generally we think about the short term and can plan for what we know. Sometimes things get missed like oil changes and tune-ups to cars, birthday gifts, and doctor visits. Since we're on a very strict budget at the moment, we can't afford to handle a huge unexpected expense. We could go into our savings, but even that right now is too low, and we prefer not to put anything on the credit card that is going to sit for a while.

To avoid these types of surprises, we've created a Necessary Expense Account (NEA) in the bank with our checking account to allow for instant transfers. We started this because my fiance needs to buy contacts about once every three months, her haircuts are about once every 6 weeks, car repairs happen whenever they happen, and same with doctor's appointments.

To cover these items we have added a few items to our budget like "Contacts", "Haircut", "Doctor", etc. We don't put in the full amount needed to cover for each event, but it's spread out enough that we won't be short. For example, we always put in about $15 a month for doctor visits. Although we will not spend $180 a year on doctor visits, this will cover any emergency room visits or unexpected visits as well. We only put in about $35 dollars a month for haircuts. This amount will not cover a haircut every 6-8 weeks (or whenever it happens), but with the extra from other areas, we're sure to have enough to make up the difference. I also put in the extra money from expense checks from work in this account (I will elaborate more in a future post) to help cover car repairs.

We figure if we have a bad year, maybe we won't be able to cover everything this way, but so far we're doing ok. We also have capped the amount in the account at $2000 (if for some reason it reaches that high), figuring that that is enough to cover any car repairs we may have and other necessities.


  • At 1:55 AM, Blogger GolbGuru said…

    That's $420 a year for haircuts ! it some kind of a posh hairdressing "establishment" it costs both of much less than half of that.

  • At 9:07 AM, Blogger MoneyFwd said…

    She likes what she likes, and she tries to not go every 6 weeks although she would like to. It's one of her few things she really enjoys so it's fine. We just know that we have to be careful elsewhere with our spending.


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