Saving to spend: 5 ways to prepare for major expenses

Talking about saving money is an every day occurrence here at Atlanta Bargain Hunter. We find ways to save on entertainment. We save for college, find ways to save by spending less and we save for rainy days.

How often, though, do we talk about saving money with the intent to spend it?

It’s an important part of savings strategy. Every year, you likely have major expenses that you pay only once or twice a year. Car registration, taxes, insurance, vacation and holiday shopping are classic examples. Let’s say you had an annual expense of $500. You likely don’t think about it until the bill comes. However, if you’d saved a little each month, you could easily make the payment without sweating it.

I’m reminded of those commercials: “This can be yours with three easy payments of $39.95.”

This is saving money that is meant to be spent, rather than retirement money or even an emergency fund. How do you do it? Kiplinger.com offered some fantastic steps to making this happen.

1. Identify what those annual or bi-annual expenses are.

2. Total the amount and divide it by 12.

3. Open an account earmarked for this purpose alone. Consider an online account with a higher yield than a bank savings account. This is even easier since you won’t be withdrawing the money regularly.

4. Kiplinger.com recommends opening a separate account for each of the bills you’ve identified. While this may work for some, it may be too difficult for some people to keep up with. I’d advise utilizing the approach that best suits you.

5. Leave the money alone until you need it. Another benefit of breaking the money up into chunks is that it makes it easier for you to identify other ways you can come up with the $30 or $40 you’ll put into that savings account for the absolute necessities. For instance, can you cut back on your cable service, reduce your cell phone plan or use public transportation part of the week and put that same money toward your insurance premium instead?

Read the full Kiplinger post to get a more detailed picture of saving to spend.

How many different savings accounts do you have? Do you use them for specific purposes? Do you plan for major expenses that only come once or twice a year, or do they catch you off-guard?

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13 comments Add your comment

Robin

February 24th, 2010
8:13 am

Thanks for this suggestion. You would think it would be a ‘given’, but many times I think I have ‘tunnel vision’ thought. Although we try to budget a monthly amount for these expenses, we never actually put that money away for the later expense. I really feel like I have had a “Well Duh!” moment! How simple, and easy to do. Thank you!

mystery poster

February 24th, 2010
8:24 am

I do this for Christmas. I have direct deposit and a set amount goes directly from my paycheck into my Christmas Club account. It’s automatic and I never even have to think about it.

Then, when Christmas rolls around I have the money to pay for it.

I also do that for my homeowner’s insurance and property taxes. It’s called an Escrow account :-)

Belinda

February 24th, 2010
9:53 am

My husband and I have done this for probably 27 years, ever since we first married and bought a house. We have an account that money goes into every pay day for car registration, property taxes, homeowners’ insurance, car insurance, Christmas shopping and a few weekend getways. It’s not used for anything else. I can’t imagine doing it any other way.

BongWater Slurpee

February 24th, 2010
11:57 am

Yeppers…Divide and Conquer!

Kat

February 24th, 2010
11:59 am

Good suggestions all around. Every Christmas, I think “I should have…” and then I don’t. I need to do this! Thanks!

Rana Cash

February 24th, 2010
12:23 pm

@ Belinda, you have the right approach. It’s a great idea and forces you to know even more about exactly where your money is going.

Jen

February 24th, 2010
12:37 pm

I have a regular savings account, but what other accounts do you recommend opening for this. Another savings account or is there a better name for it? Can I get it right at the same bank that I have my other accounts in?

Melissa

February 24th, 2010
12:58 pm

I do this at ING’s online bank for my annual fees, such as car registration, XM radio and AMEX annual fee. I have several accounts there for different purposes, but this one is specifically for fees (you can open several online accounts here, they are free with no minimums, and are linked to your main bank). I send an automatic deposit of $10 per week, every Friday. It’s only $10, so I don’t miss it, but that’s $520 saved a year and I never have to worry about having that money around my birthday for registration or my AMEX.

Jen, if you want me to refer you to ING, I can. They are offering referral bonuses right now, $25 for you if you open an account with them when you are referred by a current member.

Melissa

February 24th, 2010
1:05 pm

My company used to spread out our salaries in 26 paychecks a year. I budgeted all of my expenses like I was paid two checks a month, and when the 2 months rolled around where there were 3 checks, I used them for vacation money and Christmas spending money. When they switched to 24 paychecks, I started another account (at ING) to direct deposit the extra money now in my paycheck, so that I could still accumulate the same amounts of vacation and Christmas money. I never missed the money moved to the new savings account because it was never a part of my budget, and I still get the benefits of those “extra” checks.

Brian Carr

February 24th, 2010
4:30 pm

I’m the communications director for The Clean Air Campaign, and we’ve found that simple moves like altering your commute, like you said, really can make a difference. For instance: ditching your solo drive for transit can save you about $3,000 a year in transportation costs. Plus, some people don’t even consider the fact that altering their commutes and driving less can even cut down on insurance premiums. Insurers we’ve spoken with say you can knock $50-$150 off auto insurance costs simply by making a commute change. Then that money you saved can go to something aside from your bill.

Yep, it works... if you work it.

February 26th, 2010
12:26 am

Don’t forget you can save money by having your car and home insurance with the same company. Last year, we saved over $250 by bundling our insurance plans.

Yep, it works... if you work it.

February 26th, 2010
12:26 am

Don’t forget you can save money by having your car and home insurance with the same company. Last year, we saved over $250 by bundling our insurance plans.

Valeria P

February 26th, 2010
7:09 pm

“… The Clean Air Campaign, and we’ve found that simple moves like altering your commute, like you said, really can make a difference. For instance: ditching your solo drive for transit can save you about $3,000 a year in transportation costs.” – what a load … 10 year old car, half of my mileage is commute; annual cost of the car is only $2250 including gas, insurance and service. If I took MARTA to work, not only would I have an iffy walk of 1/2 mile + on each end of the commute (no sidewalk on my street from home and icky area where I work) to the bus and thence to the train, I would be spending at least 90 minutes each way walking and waiting, riding and waiting and riding and walking. Plus the MARTA fare round trip – so let’s see 3 hours of time I don’t have to spare PLUS at close to 60% of my commute costs is a savings? (And although I might use a little less gas and slightly less maintenance, the only direct savings would be the 400 toll. I have better ways to save less than $300 a year thankyewverymuch.