A budgeting hack: the short term savings account

I’ve been budgeting for what seems like ever. I rely on budgeting as a key tool in my arsenal to continue to fight lifestyle inflation and grow my net worth. If I wasn’t budgeting I know I’d be giving in to lifestyle inflation.

Budgeting takes so much time though. There are so many things I need to think about and plan for. This inevitably leads me down a path of looking for any budgeting hack I can. I’m looking for anything that can make the budgeting life easier and hopefully lead to less time involved.

tips for budgeting

If you know anything about you you know I’m a fan of putting in the hard work. There is absolutely no substitute for hard work. However, you can be strategic with your time and your hustle. With this in mind I’ve recently shared one “hack” of sorts I use, the spending ceiling.

Running into the same issue every couple months

Back when I was younger, I was so emotionally attached to my budgets. I remember getting frustrated about the smallest things. Now? I’m much more strategic and focus more on the long term.

Sometimes focusing on the long term meant just letting go. Other times it meant finding solutions to problems.

One of the biggest problems that I’d have is when we’d go on a vacation or go Christmas shopping our spending would always spike in a huge way. I’d look back on our spending and the monthly variance would be huge.

I utilize my budget to focus on our monthly “living” number. By this I mean the cost of our lifestyle. If there are frequent, substantial swings it makes it really difficult to keep an eye on this number.

What did I do? I found a solution

Budgeting for big purchases

I knew I could budget for big purchases. I knew I could plan ahead for these types of items with a reasonable amount of accuracy. So I decided to do something about it.

Because I could plan ahead for these things couldn’t I just throw some money into an account each month to smooth out the big purchases?

Thats exactly what I did. It was a pretty simple process.

  1. Decide totals of big purchases I was going to plan for
  2. Divide that number by 12
  3. Add this as a line in my budget each month
  4. Put this amount into a saving account that isn’t touched unless its “reimbursing me” for those big purchases

I’ve done this now for a few years and it seems to work really well. It smooths out my budget. It also allows me to plan ahead for those big purchases. Now things like vacations or Christmas don’t break the bank because they are already accounted for.

What to include in your planning

This is a tricky one, right? In theory, anything that can be planned for could be taken into account for this type of plan. Just off the top of my head it could end up being a pretty long list.

The list could include birthdays, anniversaries, vacations, christmas, any time of annual payments, etc. This could mean a very lengthy list and a lot of work to just keep track of stuff.

The idea here isn’t to make more work. If you start making transactions in and out of these accounts every few weeks its going to be a drag. It will end up being a ton of work.

The idea with this budgeting hack isn’t to smooth everything out perfectly. The idea is to take the 3-4 biggest lumps out of your spending to help the overall spending smooth out.

Caution: Don’t overdo it

It would be very easy to overdo this. You could feel like a budgeting ninja warrior with your 84 items you’ve logged and “will” track. Then you start actually digging in and it gets old fast.

Start slow. Like anything its going to take work and its going to take discipline.

My execution of this budgeting hack

My execution of this principle is actually pretty straight forward. I prefer to keep things simple. Because of this I only utilize my short term savings account for only a few things. These things are:

  1. My life insurance premiums
  2. Any vacations we have coming up
  3. Christmas

Its pretty simple. I have estimated costs for each of these items. I then add all those up, divide by twelve and add that as a line in my budget that needs to be “paid” each month.

This account builds up each month. As we incur expenses for any of these items I simply move money from my short term savings account to checking.

And thats it.

Like anything that will be of value its simple but yet it will do a great job of smoothing out the bumps in the road.