How to Enjoy Your Vacations More and Dread Your Car Repairs Less
How's that for an attention-getting title? The tips I share in this post are all pretty simple and basic, but I’ve seen them transform the lives of my clients because it fundamentally changes the way they think about spending and saving.
One of my favorite strategies is to set up separate, targeted savings accounts for the many spending buckets in our lives. Most banks these days even let you "name" your various savings accounts with specific account names. For example, I literally have a savings account called "Vacation Fund". Most banks also don’t charge you anything extra to open multiple accounts. Ally Bank is my personal favorite, but there are plenty of other great choices as well. The other nice thing is that interest rates on savings accounts are finally higher than 0.01%! You can certainly find a savings account paying at least 1.45% these days. I'm not saying that amount of interest will make you rich, but it sure feels better than not earning anything on your savings!
What Kinds of Targeted Savings Accounts Should You Set Up?
As I already mentioned, for my family, we have a targeted savings account called "Vacation Fund". We've also got one called "House/Car Repair Fund", "New Car Fund", and "Emergency Fund", and several others as well. Every month, I automatically transfer funds from our checking account to each of those targeted savings accounts. We’re not talking about huge dollar amounts, but we save for each consistently, before we even pay any of our other bills. It's the "pay yourself first" mentality that you've probably heard about.
To make this effective, you should set up targeted accounts that have meaning to you and your family. Do you know your kid is going to need braces some day? Set up a "Braces Fund" (I've got one of these, too). Got your eye on a furniture upgrade? Set up a "New Family Room Fund". The sky's the limit, and these only make sense if they work for you.
So how does that get us back to the headline that I started with - enjoy your vacations more and dread your car repairs less?
Let's say our family plans a vacation. Are we going to put all the expenses on a credit card and hope for the best? Of course not (I am a financial planner, after all!). We are going to use the funds in, big surprise, our Vacation Fund! Now, instead of feeling guilty, cautious or anxious about spending money on our vacation, I feel great. We know how much we can spend, and we know the funds are there exactly for this purpose. I promise you, this will make your vacations more enjoyable. Say goodbye to that voice in the back of your head saying "should we be spending this money?" The answer in this case, is yes you should!
In my view, money is just a tool, not an end goal. All of the dollars in your accounts should have a purpose and a job. If the money is sitting in our Vacation Fund, its job is to be used for a vacation!
Next, let’s talk about other less fun (but equally important) targeted savings accounts. So as I already mentioned, I’ve got an account called House/Car Repairs. I don't know exactly what is going to go wrong with our house or cars in the next year, but sadly, I know something will require some kind of repair. Again, I am transferring money to that House/Car Repair fund every month consistently. Then let’s say we have a problem with the car that requires a $500 fix (why do no car repairs cost less than $500??). I'm not saying I’m going to be excited about this unexpected repair, but I am saying that we planned for it. So the car repair doesn’t cause any stress in our lives. We simply move money out of our House/Car Repair fund and use it to fix our car.
Again, none of this is rocket science, but it does almost feel magical once you get your accounts set up and automate your monthly transfers. None of this will actually create money you didn't already have (except maybe the interest), but it hopefully WILL stop you from accidentally building up credit card debt and getting in over your head. And it will also help you enjoy your vacations that much more!
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Alyssa Lum, and all rights are reserved. Read the full Disclaimer.