Moving to Iowa City meant a new expense in our monthly budget: parking. Within my first week at University of Iowa, I was lucky to find an off-campus private business that leased spots in their parking lot. The owner explained they charged $60 per month, payable twice a year. Thinking of my parking spot as a monthly charge–rather than biannual–motivated me to approach the expense in a different way than other semi-annual or annual payments. I decided to “pay” the bill each month by transferring $60 from my checking account to my savings account. The easiest way to do this was with a recurring automatic transfer.
When my parking bill came due, the $360 was waiting in my savings account. It was stress-free, and our monthly budget did not take a hit. Plus, it felt really awesome to “pay myself back” by transferring the cash back over to my checking account! In the past, I had used automatic transfers to contribute to my IRA or general savings. However, I had never used savings for short-term, defined expenses.
It was a simple and obvious switch, and has completely changed the way I approach monthly budgeting.
It occurred to me that I could save for more bills and even other expenses this way.
Not Just Bills
The most obvious choice was our car insurance, due every six months. After a year or so, I increased that monthly contribution to include our yearly car registration fee. In addition to bills, I started to think about other large annual expenses. For example, I skimmed my statements to calculate how much I spent on holiday presents. I divided that number by 12, set up a recurring automatic transfer and was ready last December. I have done the same for pet care, vacation, and even family photos.
Set it and forget it
The great thing about these transfers is because they are recurring and automatic, I don’t have to think about it. I set up my transfers for payday, so the amount remaining is what I have to spend on other bills, groceries, shopping, etc. Because the money has already been moved out of my checking account, I don’t miss it. Since making this adjustment in our budget, our checking account doesn’t take a hit a few times a year. The money is waiting in savings for larger anticipated expenses, rather than being scraped together.
Track & Search
To track my recurring automatic transfers, I created an Excel spreadsheet. I update it once a month so I know how much money I have saved for each expense. You could just as easily do this in a written notebook or Google Doc. I also named each transfer by using the bank’s memo section when I set it up. This way, I can search within my savings account to track the deposits and withdrawals for a specific category.
Consider Withdrawal Limits
If you are considering “paying” yourself for larger semi-annual or annual expenses, keep withdrawal limits in mind. The Securities and Exchange Commission’s (SEC) Regulation D limits no more than six withdrawals from your savings account each month. Banks and credit unions may fine you if you exceed this amount. Your checking account, however, is not subject to Regulation D. This allows you to set up multiple recurring automatic transfers from your checking account to your savings account. You will just want to keep an eye on how frequently you are pulling that money out of your savings account back over to your checking account.