It’s pretty easy to rattle off your monthly expenses: Rent or mortgage payments, utility bills, Internet, student loan payments, car payments, food, gas. On top of paying those bills, I also recommend setting aside money in your emergency fund so that a surprise doesn’t cause you to fall behind on those bills.
But if you look through your last year of credit card statements, you’ll see a whole category of expenses that aren’t monthly bills but aren’t emergencies, either. These range from occasional expenses, like veterinary checkups for your pet and oil changes for your car, to holiday gift-buying.
You may have enough discretionary income that those expenses don’t disrupt your monthly cash flow. But if you find that you’re occasionally late on a bill or that your credit card balance is a little higher than you want, try planning ahead for expenses like this using a revolving savings account.
A revolving savings account is an account you move money into every month or out of every paycheck. When annual or semi-annual expenses pop up, you can use the money in your revolving savings account to cover them.
If you can set money aside in advance, you can prevent these occasional expenses from disrupting your monthly cash flow. A revolving savings account is an extra layer of security between your checking account and the money you’ve set aside for emergencies.
Make A Calendar of Recurring Expenses that Aren’t Monthly
To understand how much you need to put aside in your revolving savings account, you need to know how much you spend on occasional expenses. These could include fun things like birthday gifts, holiday gifts, anniversaries, and vacations, as well as more serious stuff like car registration fees, dentist’s appointments and your Amazon Prime membership.
You can decide at the beginning of the year how much you want to spend on all these categories. Or you can go back through your credit card and bank statements from last year and make a list to get an idea of how much you should set aside.
- Holiday gifts for family
- Birthday gifts for loved ones
- Mother’s Day and Father’s Day spending
- A weekend trip for your anniversary
- Vehicle registrations
- Routine car maintenance costs
- Routine home maintenance costs
- Veterinary visits
- Healthcare and dental care
- End-of-year donations
- Credit card fees
Let’s say you spent $3,000 total on all these things last year. That’s an average of $250 per month, but that’s probably not how it happened in real life. For instance, holiday spending is concentrated in November and December. If a bunch of donations plus your Prime membership also get charged to your credit card in December, you may end up with a surprisingly high balance on your January statement.
But, if you can put aside $250 per month for these expenses in a revolving savings account, you can spend down that money throughout the year. If you’ve planned well, the balance in your revolving savings account will never get too high or low because you’re constantly spending it and then replenishing it.
Can’t I Just Use My Emergency Fund For These Things?
Yes — if you make sure to account for all of these expenses on top of the 3-6 months of expenses you keep in your emergency fund.
The thing is, none of these expenses are unpredictable. If you own a car, you know you’re going to have to get the oil changed a few times a year, and probably make some other repairs too. Birthday dinners and holiday gifts come up at the same time every year. These things happen just infrequently enough that they’re easy to forget about. That’s why they can add up so fast.
Opening A Revolving Savings Account
Even if the money is technically easy to access — and it should be, so you can use it when you need to — having it in a separate account will help you remember that this money is set aside for specific purposes.
Your revolving savings doesn’t have to be in a high-yield savings account the way your emergency fund should be. Money will be flowing in and out of this account pretty frequently, so it won’t earn much interest even with a high interest rate.
If you prefer to spend money directly out of this account, you may want a debit card linked to it. But this isn’t necessary. You can use your checking account debit card or a credit card to cover these expenses and then use your revolving savings to pay it off.
If you use a bank that makes opening a new account easy, then you can create a revolving savings account whenever you’re ready. Just figure out how much you want to set aside each month and set up automatic monthly transfers from your checking account.
Building a Better Spending Plan
Learning how to manage your spending is a lifelong process! A revolving savings account is another tool that can help you manage your spending while you figure out how you want to manage your cash flow.
At the end of the day, the best spending plan is the one that you use consistently over time. One month may reveal opportunities to save or spend less in certain categories. When you commit to planning and tracking your spending for at least 3-6 months, you will start to truly see success in your plan and understand how your spending plan will give you permission to spend in areas you value and save more towards your goals.
There is no “best” tool for managing your spending plan — it just needs to work well for your family. You can use an Excel or Google spreadsheet, a trusty pen and paper, or an automated app like EveryDollar, TillerMoney, You Need A Budget, or Mint.