How to create a ‘Set-Aside’ for Periodic Expenses in 5 easy steps.
Step 1: Identify your list of periodic expenses in your budget.
As a review, these are expenses that don’t happen every month but occur more randomly.
Step 2: Determine how much you can realistically put into each of your set asides on a monthly basis.
Use the example shown of looking at one year of expenses needed for car maintenance, the cost of each item, and then divide by 12 months. As a note, start small to set yourself up for success.
Step 3: Create an account separate from your primary checking account to save the money each month.
The point of setting the money aside in its own account is so that the money doesn’t get mixed up with your money for regular and variable monthly bills and expenses. This account could be a savings account that is linked to your primary checking account or it could be a savings envelope that you put cash in each month. The goal is to make sure the account is being used for the specific purpose of the designated set aside. A great way to seed your set aside account is through savings opportunities like bonuses, raises, tax refunds and birthday or holiday money. Lastly, if you finish paying off an installment loan, like a car loan, continue paying yourself that car payment but put it in your savings set aside.
Step 4: Automate your set aside.
One of the best and easiest ways to ensure you fund your set aside each month is to set up an auto pay into your savings account. Determine the best day of the month to set up the auto pay to keep your set aside on track. Hint: Paydays are great days to set up an auto pay into your set aside account.
Step 5: Keep at it – it takes time.
The purpose of a set aside account is so that when an unplanned expense pops up, you have money set aside to help pay for that expense. It’s ok to use that money for those expenses. It can feel discouraging to have to use the set aside to pay for a periodic expense but keep at it! This is a savings marathon and building this habit today will put you in a better position down the line in case of other unplanned expenses. You’ve got this!