Do you know that feeling you get when you open the mailbox and find your car registration renewal? Does back-to-school time send you into a financial frenzy?
You’re not alone, many of us get caught off guard when these less-typical expenses “pop-up”.
Here’s a plan for how to build a cash cushion, or “pop-up” savings account. Unlike other savings accounts, this account is specifically allocated to cover all of these expenses that pop-up periodically.
Here’s how you begin:
- Gather old bank statements, or just get out a calendar.
- Write down your expenses that fall outside of your normal budget in the month that they pop-up. Include such items as:
- car registration
- back-to-school (school-supplies, clothes, haircuts, etc.)
- dentist and doctor co-pays for routine check-ups
- oil changes
- pet vaccines and annual exams
Here is a periodic expense chart that you can download and customize for yourself.
Once you add up a year’s worth of expenses – it’s a big chunk of change! Divide that number by 12 and this is the amount you need to enter into your budget to cover pop-up expenses.
Note: You’ll notice that some months might require more cash to cover your periodic expenses before your savings has built up to that amount. If your pop-up expenses are heavy in the beginning of the year before you’ve built up the cushion, you might have to re-arrange the timing of some of your expenses, or you’ll have to contribute extra money to your pop-up savings in the beginning to cover everything.