[Shannon]

How do people look at/account for large, one-time expenses?
As an example, we just put in a new HVAC system for several thousand dollars.

I hate looking at my monthly expenses being more than our income as we pay this thing off (at 0% interest) even though I know we have all the money and resources to pay it off.

Most of the time, I just blow it off since I know it will be taken care of.

I suppose it is good practice for the draw down phase.

But in all seriousness, when you are still accumulating, how do you keep track of and think about these things so it doesn’t feel like you’re blowing your plan?

UPDATE: Thank you everyone! I like the idea of thinking about a percentage of my emergency fund being in “buckets,” and I especially appreciate those of you who suggested putting a percentage of property value aside regularly for maintenance and improvements.

We’ve always been just fine, but I would get so frustrated with the numbers. It made me feel like I couldn’t really know what my monthly expenses truly were.

I feel like now I’ve got a more solid way to figure this out .

[Jessica]

Sinking funds. I use buckets in my emergency fund. So, my overall ef is 6 months of expenses in case I lose my job.

But… I have it broken up into other categories … 4k for car… 3k home repair.. etc etc.

That way… when one of those things pops up…

which they always do… I feel better about using those funds to just pay for whatever happened in full. Then I build back my ef.

[Tony]

What you’re describing is not that dissimilar from the folks who have a meltdown every time there’s a market correction.

The key is keeping your focus on long-term goals and ignoring the noise and distractions that will inevitably happen along the way.

Often I find that for every inconvenient or stressful expense that pops up along your journey, there is an equal amount of serendipity or unexpected good fortune that offsets it.

In your example – sure, an HVAC costs a lot of money, but that’s probably been more than offset by the ridiculous appreciation of homes and equity growth that’s occurred over the last 5 years.

Or maybe it takes the form of an inheritance, or in an unexpected job raise or promotion.

Or maybe a car that you thought would only last 10 years has lasted 15. Accept the losses but also appreciate the wins when you get them.

As long as you are proactive in life and mitigate whatever losses may come your way, you’re doing great.

[Sarah]

We just have a large emergency fund and most of the time we pay it right away but if it is 0% financing like our furnace was, we waited a year and then it was hanging over my head and I wanted it gone (my hubby wanted to upgrade to first class tickets and I said absolutely no way I’m doing that until the furnace is paid off)

[Shirley]

I have funds/buckets for different categories and put a certain $ amount into each fund each month. For example, if homeowner’s insurance is $1200/year, I’ll save $100 each month into that fund.

When the bill is due, I’ll just use that $ in the fund to cover the bill.

It doesn’t feel like a huge one time expense since I’ve budgeted each month for it.

[Damon]

I’m really not that dogmatic about things. If I need an AC so my family doesn’t die of a heat stroke then I get it without guilt (and I assume we are talking about people who have the resources and aren’t living on the edge of survival).

I focus 99% of that energy on making more money. We have to spend $5k on a large expense? Ok, let me figure out a way to make $10k so I’m $5k up.

[Lori]

Sinking fund for all non-monthly expenses: birthday parties, property taxes, spring and fall cleanup, house maintenance (pick a % of your home value), life insurance premiums, vacations, school photos, holiday hosting, etc etc. Add it all up, divide by 12, and put it aside every month.

[Jeff]

Our house was built in 1992. we’re still on the original HVAC system. I know… Amazing, but we’re counting our blessings. I have an emergency fund and I know a significant portion of it will be used for this purpose someday.

In the mean time, I like the nearly 5% interest it’s getting. Just be happy you have the money available to replace it

[Roberta]

We keep everything in separate buckets. Home maintenance, travel, LTC plan A & B, new autos if ever needed, hobbies etc.

All have their own bucket with the lifetime of funds we would use on the items in those buckets. This way it never plays into our living expenses.

[Scott]

The way I think about it in accumulation or de-accumulation is that ‘depreciation’ is a real expense.

In other words if you have 10 things each of which has a 10 year life on average 1 a year will go.

Personally I have a budget each month for repairs and maintenance even though it is lumpy.

If I have a year with few things done…I know that it is luck stuff like the HVAC will happen, you can’t predict when.

[张扬]

I plan to spend on average 1% of my property value on home maintenance each year, and factor that into my savings & expenses. Then, when the time comes to spend that money, I don’t sweat it.

[Kristy]

We have a home maintenance sinking fund for things like this. We have a little over 30 different sinking funds and I love them because they plan for everything and keep our monthly budget the same regardless of time of year or type of “surprise” expense (surprise in quotes because it’s not a surprise that it’s coming, just a surprise as to when it’ll happen).

[Melanie]

I plan out most things like that. Like, I know I’m going to need a car for my youngest late next year so I’m putting $1000 a month that I get from a dividend into a separate account earmarked for her.

My oldest’s car is likely going to crap out soon too, so I’ll need to help her as well (just a down payment) so I keep that in mind too as I’m saving.

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