Freedom Funds Set You Free

Throughout the course of the year, the extra expenses and extra funds seem to ebb and flow in my household. Undoubtedly yours is no different. I find that toward the holidays of Thanksgiving and Christmas, there is a significant increase in the number of miscellaneous expenses. The key to these expenses can be the use of a Freedom Fund. This is completely separate from an Emergency Fund.

Combatting expenses can be done through the use of a freedom fund whereby you set aside funds each week or month for categories based on large, medium term expenses. These types of expenses can be anything from that brake job you know you have coming up, to Joey’s wedding and the travel costs to get there, or even Christmas shopping.

Plan Ahead

Planning is the crux of the Freedom Fund. This fund is separate from your Emergency Fund and allows you to keep money separate for real emergencies versus expenses that you knew that you would have in the future but just needed to save up to afford.

The Christmas Club is an old idea that is similar to the Freedom Fund except it was usually only for Christmas. Money was deposited regularly in order to make sure that there was enough money at the end of the year for the Christmas expenses and then it was withdrawn at the end of the year.

Staying On Track

It is a good idea to keep meticulous records of the moneys that are deposited and withdrawn from this account with notes about each transaction. This will help you remember at the end of the year and as time goes by about how you are using the money in these accounts. Hopefully, you will reach your target for your emergency fund and then be able to do something else with that money–either pay off more debt or add to your freedom fund for a luxury expense.

Keeping up with the Joneses can be difficult. Adjusting your deposits to these counts is a must, therefore. Since inflation continues up, a good rule of thumb is to round your deposits up by the amount of inflation (currently around 2.5%) each year and perhaps then go up to the nearest 25 or 50 dollars if making a monthly deposit.

Pay yourself first by always making these deposits and you should find that you are able to keep maintaining your lifestyle without really suffering. Even as inflation rates go down, as they have recently, still try to be aggressive with your saving in both of these funds. You’ll find that you can still be aggressive and also improve your standard of living…so long as you get a yearly raise that is higher than the inflation rate.

Ebb and Flow

Regardless of how much planning you might do, there will always be irregularities. Sometimes, there just won’t be as much of a raise as you expected. Or there might not be an expense that you had foreseen. The important thing throughout all of these unexpected events is that you keep a focus on the plan, but remain reasonable. If you have more expenses, try to earn more. If you are awash with cash and find yourself stressed and pressed for time, then take some time off to relax since you can afford it.

Nothing is certain and with each day our situations can change. Money is not likely to be your only priority, and having skill to manage the emotions that come with the natural ebb and flow of your money situation is key. Focus on things that you can do, expenses you can reduce and additional income you can really earn. Taking action can give you strength to face the aspects of your finances that are beyond your control. And the positive attitude that results is a catalyst for creating more lucrative opportunities going forward.