Lesson 33: Your Peace of Mind Account
Hello Revolutionists,
This week I want to talk to you about peace of mind, and how living the Cheapskates Way gives you that peace of mind.
What brought this about (this wasn't the lesson I had planned for this week) was a question from a member which went "Could you please tell me when my membership will expire? I know that when I have less than 30 days left it will tell me when I log in, but as you can appreciate I like to know what payments I have coming up and budget them in."
This question disturbs me on so many levels, but mainly because RA knows she is going to renew her membership, she knows it's an upcoming expense and yet she doesn't know when she has to pay the bill.
When you take out a subscription, for anything, and you know it's one you are going to keep paying, then you need to factor it into your Spending Plan, no matter how much it is.
Take your Platinum membership renewal for example. To renew your membership is $36.50 a year, or 10 cents a day, or 70 cents a week or $3.05 a month.
Depending on how you run your Spending Plan (weekly, fortnightly or monthly) you should have a category for your Platinum membership renewal and regularly put that amount aside in your Peace of Mind account.
Your membership renewal is a regular expense, therefore it needs to be included in your Spending Plan so that when it's due you can pay it, without having to find the money. You've planned ahead and have the peace of mind of knowing that you can pay that bill when it
arrives.
The same principle that applies to all your regular expenses (like your membership renewal), also applies to those irregular expenses, the ones that are one-off or only happen every now and then, the ones that catch you off guard, and unless you've planned for them you need to find the money quickly, often resorting to credit (ouch!) - and there goes your peace of mind!
You're holding your own and the budget is working out. That is until, out of the blue, Murphy comes calling and you need to replace the fridge. Or Junior's orthodontia bill doubles due to the genetic over-bite you didn't know he had. Not a problem, that's what you kept your one and only credit card for. Problem solved.
Wrong! If you don't have the money to buy your new fridge (or pay the orthodontist) then you don't have the money to pay off the credit card bill at the end of the month and you are back on the debt cycle again. Unexpected expenses like these aren't really unexpected. You have always known that at some stage you would need to replace the fridge. Chances are you've known for a few years about Juniors upcoming braces ordeal. The problem was that you
didn't allow for this irregular expense in your Spending Plan.
The peace of mind you thought you had has gone. In its place is the stress you used to feel when you were trying to pay the bills at the end of the month.
What you need is a Peace of Mind Account. Your Peace of Mind Account is where you deposit regular amounts to cover irregular expenses: furniture replacement, emergency medical expenses, unexpected car repairs etc. Depositing regularly lets the balance build up so the when Murphy calls you can cover the expense without having to thaw out your credit card.
A Peace of Mind Account isn't complicated or hard to use. It does however give you a sense of security and that peace of mind I keep talking about.
I suggest that you open a separate account, either online or at your bank or credit union. Look for an account with low or no fees that allows you to transfer money between your existing accounts. As you are going to be building the balance up look for an account that pays interest.
Once you have your Peace of Mind Account set up sit for a few minutes and think of all the irregular expenses you have had or could possibly have: car repairs, plumbing problems, unexpected medical expenses, replacing the washing machine or vacuum cleaner etc. If you have the information, jot down roughly how much each one was. While you're thinking and jotting make a list of all the other expenses you've had in the last year that weren't covered in
your Spending Plan: family weddings, unexpected trips, school camps, birthdays, Christmas (yes, there are some who don't plan for this regular expense), crafts and hobbies etc.
Take your list and work out how much you need to add to the Peace of Mind account each week to be able to cover these expenses when they crop up. For example, your new fridge cost $1,200. You have a two year warranty on it, so hopefully you won't need to replace it
for at least two years. To be able to replace the fridge when the warranty expires you need to add $11.50 a week to the account ($1200 / 2 = 2 $600 / 52 = $11.54). School camps last year cost $478 so you'll need to add $9.20 to the account each week to cover the cost.
It is essential that you track what's going in and out of this account and keep a record, so you'll know if you have the money to cover an irregular expense when it crops up. I use an exercise book with one item to a page. Each item is an irregular expense and it's page is ruled into columns: date, transaction, deposit, withdrawal and balance.
It looks like this:
Peace of Mind: Orthodontist Limit: $1,760
Once you've set up your Peace of Mind account you need to treat it just as you would any other bill. You must make regular deposits into it for it to work. You'll also need to decide on limits for some of the items i.e. that new fridge. When you reach the limit for each item you can stop making deposits until next year. I suggest that you apply that money to your Emergency Fund to give it a boost.
Lastly, remember that this isn't a savings account or an Emergency Fund. This is a spending account. The money in this account is to be used to cover those irregular bills and give you peace of mind.
Lesson 33 Challenge: If you don't already have a Peace of Mind Account, start one, right now, this week. Start putting away the money you'll need to paint the house in 5 years or replace the dishwasher in two years or yes, even pay for the braces for Junior's teeth. Become smart about saving for your expenses and you won't ever have to resort to credit. You can do it!
This week I want to talk to you about peace of mind, and how living the Cheapskates Way gives you that peace of mind.
What brought this about (this wasn't the lesson I had planned for this week) was a question from a member which went "Could you please tell me when my membership will expire? I know that when I have less than 30 days left it will tell me when I log in, but as you can appreciate I like to know what payments I have coming up and budget them in."
This question disturbs me on so many levels, but mainly because RA knows she is going to renew her membership, she knows it's an upcoming expense and yet she doesn't know when she has to pay the bill.
When you take out a subscription, for anything, and you know it's one you are going to keep paying, then you need to factor it into your Spending Plan, no matter how much it is.
Take your Platinum membership renewal for example. To renew your membership is $36.50 a year, or 10 cents a day, or 70 cents a week or $3.05 a month.
Depending on how you run your Spending Plan (weekly, fortnightly or monthly) you should have a category for your Platinum membership renewal and regularly put that amount aside in your Peace of Mind account.
Your membership renewal is a regular expense, therefore it needs to be included in your Spending Plan so that when it's due you can pay it, without having to find the money. You've planned ahead and have the peace of mind of knowing that you can pay that bill when it
arrives.
The same principle that applies to all your regular expenses (like your membership renewal), also applies to those irregular expenses, the ones that are one-off or only happen every now and then, the ones that catch you off guard, and unless you've planned for them you need to find the money quickly, often resorting to credit (ouch!) - and there goes your peace of mind!
You're holding your own and the budget is working out. That is until, out of the blue, Murphy comes calling and you need to replace the fridge. Or Junior's orthodontia bill doubles due to the genetic over-bite you didn't know he had. Not a problem, that's what you kept your one and only credit card for. Problem solved.
Wrong! If you don't have the money to buy your new fridge (or pay the orthodontist) then you don't have the money to pay off the credit card bill at the end of the month and you are back on the debt cycle again. Unexpected expenses like these aren't really unexpected. You have always known that at some stage you would need to replace the fridge. Chances are you've known for a few years about Juniors upcoming braces ordeal. The problem was that you
didn't allow for this irregular expense in your Spending Plan.
The peace of mind you thought you had has gone. In its place is the stress you used to feel when you were trying to pay the bills at the end of the month.
What you need is a Peace of Mind Account. Your Peace of Mind Account is where you deposit regular amounts to cover irregular expenses: furniture replacement, emergency medical expenses, unexpected car repairs etc. Depositing regularly lets the balance build up so the when Murphy calls you can cover the expense without having to thaw out your credit card.
A Peace of Mind Account isn't complicated or hard to use. It does however give you a sense of security and that peace of mind I keep talking about.
I suggest that you open a separate account, either online or at your bank or credit union. Look for an account with low or no fees that allows you to transfer money between your existing accounts. As you are going to be building the balance up look for an account that pays interest.
Once you have your Peace of Mind Account set up sit for a few minutes and think of all the irregular expenses you have had or could possibly have: car repairs, plumbing problems, unexpected medical expenses, replacing the washing machine or vacuum cleaner etc. If you have the information, jot down roughly how much each one was. While you're thinking and jotting make a list of all the other expenses you've had in the last year that weren't covered in
your Spending Plan: family weddings, unexpected trips, school camps, birthdays, Christmas (yes, there are some who don't plan for this regular expense), crafts and hobbies etc.
Take your list and work out how much you need to add to the Peace of Mind account each week to be able to cover these expenses when they crop up. For example, your new fridge cost $1,200. You have a two year warranty on it, so hopefully you won't need to replace it
for at least two years. To be able to replace the fridge when the warranty expires you need to add $11.50 a week to the account ($1200 / 2 = 2 $600 / 52 = $11.54). School camps last year cost $478 so you'll need to add $9.20 to the account each week to cover the cost.
It is essential that you track what's going in and out of this account and keep a record, so you'll know if you have the money to cover an irregular expense when it crops up. I use an exercise book with one item to a page. Each item is an irregular expense and it's page is ruled into columns: date, transaction, deposit, withdrawal and balance.
It looks like this:
Peace of Mind: Orthodontist Limit: $1,760
Once you've set up your Peace of Mind account you need to treat it just as you would any other bill. You must make regular deposits into it for it to work. You'll also need to decide on limits for some of the items i.e. that new fridge. When you reach the limit for each item you can stop making deposits until next year. I suggest that you apply that money to your Emergency Fund to give it a boost.
Lastly, remember that this isn't a savings account or an Emergency Fund. This is a spending account. The money in this account is to be used to cover those irregular bills and give you peace of mind.
Lesson 33 Challenge: If you don't already have a Peace of Mind Account, start one, right now, this week. Start putting away the money you'll need to paint the house in 5 years or replace the dishwasher in two years or yes, even pay for the braces for Junior's teeth. Become smart about saving for your expenses and you won't ever have to resort to credit. You can do it!