Project Buy a House is my three-year-plan for becoming a homeowner. I hope you’ll come along for the ride, even if your goal is different from mine. If you’re new to this series, you can read the first post here. Click the button above if you’d like to sign up for an email notice of new posts and get a free 23-page C.H.a.O.S. Binder Quick Start Guide.
Meet the Lifeboat
Mary Hunt calls it a Freedom Account.
Dave Ramsey calls it an Emergency Fund.
We call it our Lifeboat.
I’m talking about a way to manage your money so that the things that always (always) pop up that are outside your ‘normal’ monthly spending don’t completely derail you.
Guess what? Things like car repair, haircuts, dog grooming, visits to the dentist, vacations, and gift-giving are normal spending. They just aren’t monthly, someone-sends-you-a-bill, spending.
Having a lifeboat when your breaks go out is an awesome, awesome thing, let me tell you. But so is being able to get your haircut without feeling guilty.
I’ve really struggled with this. I like the Mary Hunt’s idea of having a separate checking account and a list of subaccounts (vacation, clothes, car, etc.) that I can organize my weekly deposit into. Nice and neat, right? Except my brain doesn’t work that way, and I get lost, and then I just spend all the money because the car needs new brakes and I can’t figure out my subaccounts and FORGET IT! Too much.
Here’s how our Lifeboat works: We put $100 into it every week. We have a list of things that qualify for being paid for out of the Lifeboat.
- School and work clothes
- Necessary shoes
- Hair cuts
- School supplies and other expenses (field trips, etc.)
- Ruby’s soccer
- Car repair, maintenance, and registration
- Dog grooming and vet needs
- Work-related expenses (including home office things, like printer ink.)
- Travel for Work
- Vacation (or staycation activities)
- Medical expenses
- Anything that qualifies as an emergency
We added up what we estimate we’d need to spend on these things in a year, then divided that by 52 and then made it $100 because we like nice round numbers like that.
I have a worksheet in the money section of my binder and I just write down what goes in and out of the Lifeboat. We balance that on our money day, so my poor bookkeeping skills can’t get too out of hand. We know what we had last Monday and what we have now, so we can figure out where my math went wrong if we have to.
Here’s my worksheet for you to print out. If you’re working on your C.H.a.O.S. Binder, you can put it in your money section.
We don’t bother with subaccounts, because they make my head hurt and Kevin has a saying: it’s as broad as it is long. Which basically means he doesn’t care one way or the other. I suppose that could lead to trouble, but honestly I trust us to keep from running rampant with our Lifeboat. We really want to buy a house. And we’re grown-ups.
The truth is, if the transmission goes out of our car and we don’t have the money in the ‘car’ subaccount, we’d have to raid the vacation subaccount anyway. And probably every other subaccount we had. I am just way, way too right-brained to manage 10 or 12 micro accounts on a weekly basis. It’s far too much math.
So far, we spend considerably less than $100 a week out of our Lifeboat. Which is the idea, of course. We want to build up enough money so that if we need work done on our car or we decide to take a day trip somewhere, the money is there. And I’m pretty excited for Christmas, when there will be no scrambling for money for gifts starting the day after Thanksgiving. (Black Friday has a whole other meaning for the disorganized!) It’s only been a couple of months and the relief of having money when we need it is kind of incredible.
It was tough at first, putting that $100 in an envelope every week, but it didn’t take long to get used to it. We put it in, even if we know it’s coming right back out for some expense. Sometimes we put it in, telling ourselves that we know we might have to use it to pay the power bill. And you know what? At least it would be there to pay the power bill, whether that’s a Lifeboat expense or not. So far, we haven’t had to do that.
Everybody Needs a Lifeboat
The Lifeboat isn’t a savings account. It’s also not an emergency account, although emergencies do fall under the Lifeboat umbrella. It’s a flow of money, in and out. It’s never static.
Some of the things on the list of acceptable Lifeboat expenses are relatively small and could be put off for a while if the money wasn’t there to pay for it. Haircuts, clothes, school supplies, dog grooming, for instance.
Some of the things would be a little harder to forego if we didn’t have the money to pay for them, like Ruby’s soccer or paying for her to go on a field trip at school, money for gifts, or getting an oil change.
Then there are a few that could wipe us out, Lifeboat or not. Major car repair, someone in my family needing major dental work, Mae getting sick enough to need vet care, and that ominous ‘anything that qualifies as an emergency.’ Now I feel like I need to knock on wood.
Those tragic, big-deal things? They happen. They wipe out your reserves when they do. Having a Lifeboat makes it so that you actually have some reserves to start with. And maybe having that reserve will mean the difference between hanging on and disaster.
Here’s the thing. If you’re already spending money every month for things outside of your rent or mortgage, your bills, groceries, and gasoline, you have the money to start a Lifeboat. You just need to decide to manage that money in a different way. Like, in a way that keeps you from accidentally spending the money for your oil change at Starbucks.
Ideally, you’ll figure out how much money you need to fund your Lifeboat for a year and every week you’ll put 1/52 of that amount in an envelope.
Chances are that isn’t going to happen. It didn’t happen for me. We were too used to spending every single penny when it came in. We started with $20 a week, then $50, then $80, and finally $100. Those first weeks, it really did feel like we didn’t have even $20 to spare. Our income hasn’t changed since then, but our perspective has.
We’re staying at $100 per week into our Lifeboat for now. You can start with — really anything. Have a goal in mind and just up your Lifeboat deposit every week until you get to that goal. And remind yourself, as often as it takes, that you’re not depriving yourself of that money. You’re making sure that when you need to spend it, it’s there. You’re managing your money. How grown up of you!
If you’re struggling with putting that money away every week, it might help to make a list of non-regular spending that’s coming up in the next week. How about Thanksgiving dinner? Or maybe you need a haircut or an oil change. Or both. Think about how nice it will be when you can do those things without running yourself ragged keeping all your plates spinning.
Using Your Lifeboat
Here’s how we do it. Every Monday we sit down and have our money day.
We put $100 into the account, first thing. We balance the worksheet from the week just past. And we think about what we might need to spend out of the Lifeboat in the upcoming week. We can’t always know for sure–those emergencies are slippery things. But some stuff we can plan for.
We also try to keep an eye on bigger expenses that we know are coming up, so that we don’t drain the account just before our car registration is due or something.
That’s it. Easy peasy.
CLICK HERE for a printable action plan.
Make a list of all of the irregular expenses you have in a year if you didn’t already do it last week. This worksheet should help.
Estimate how much money you normally spend in a year on each item on your list.
Divide that estimate by 52 to figure out your weekly deposit into your Lifeboat.
Start depositing something into your Lifeboat with your next paycheck.
Make a plan for building that up to your goal deposit.
Printout and use the Lifeboat Worksheet to track your deposits and withdrawals.
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This post is linked to these awesome blogs:
The Pioneer Mommma, The Sunday Showcase, Manic Monday, Monday Handmade, You’re Gonna Love it Tuesday, The Scoop, Mommy Monday, In and Out of the Kitchen, A Bowl Full of Lemons, Hip Homeschool Hop, Maker’s Link Party, Be Inspired, Two Little Cavaliers, Our Life on a Budget