If saving money just to save money doesn’t really float your boat, then you might want to read a little bit of this.

This little money saving trick is often overlooked, but those of you who are “financially savvy” might be anticipating the topic of this article, based on the title. My goal in writing this is to drive home two very crucial points about the emergency fund principle and saving money in general.

The trick to saving money is to have an emergency fund. As we all know (or as you are learning right now), every single person needs to have an emergency fund of three to six months’ expenses in a very liquid (accessible) account. I recommend you have this money in a savings account or money market. Your options for an account are numerous (I recommend ING DIRECT). Remember, don’t go hunting for some great interest rate - you won’t find it. You want something that is easy to set up and easy to withdraw money from in case of an emergency.

So how does this trick of saving money save money? We’ll discuss two different items.

A lot of people disagree with the idea of “no credit cards” because they might need one in the event of an emergency. I think this is ludicrous, but that’s a different subject all together. Let’s suppose that an emergency comes up and you need to fork over $1,000. Because you have an emergency fund, you simply pay it all up front and begin replenishing your account. If you didn’t have this money set aside, where would you turn? To your “emergency” credit card. With credit card rates being their lowest in history at the time of this writing, this won’t be as drastic, but it will still drive home my point. So, you charge the $1,000.

In 10 months, socking away $100 towards emergency fund replenishment, you are back up to par again. But if you charged the $1,000 and paid $100 a month to pay it off? It would have taken you almost another month. It cost you about $60 (assuming a 9% APR) just to charge it on your card. That may seem small to you, but couple that with other credit card balances and you have a pretty formidable giant you’re playing footsies with.

So when saving money, you save on interest because you have the money when an emergency strikes. The emergency fund replaces the emergency card.

Insurance premiums are often overlooked in terms of your ability to save money. I just got off the phone with my insurance company and they told me that if I were to remove the maximum deductible that I have in place and drop to no, or a very low deductible (as most people do), it would cost me another $630 per year. That’s on one vehicle! Most people are scared when it comes to choosing a high deductible. Why? Because they don’t have an emergency fund. When you have your emergency fund in place, you’re allowed to live with a bit more “risk” if it’s even correct to call it that. In reality, you’re living with less risk - further from the edge. Anyone who chooses to lower their deductible so they don’t have to pay out more money in the event of an emergency, but doesn’t have an emergency fund, is playing with fire - now there’s risk. That’s a game I just don’t like to play.

Wrapping things up, you might think that having your money stashed in a low-interest rate type of fund is costing you a lot in opportunity. I tend to see it a different way. When you have that money there to fall back on you save any interest costs associated with having to borrow money to get out of a jam, and you can increase your deductible because the money’s there. An emergency fund is really the only way to go. Start saving money by saving some money.

Everyone is familiar with Murphy’s law. It basically says that if something can go wrong, it will. Popular radio talk show host Dave Ramsey also warns listeners that if they buy a house while they’re broke, Murphy will “move into the spare bedroom.” My favorite Murphy’s Law revision:

You cannot successfully determine beforehand which side of the bread to butter.

If you could, you wouldn’t need an emergency fund.

As discussed in Rule One of the Four Rules of Cash Flow Management, 70% of Americans live paycheck to paycheck. This means that if something unexpected comes up, they’re broke. All of a sudden they’re behind on their car payment, Mastercard payment, Visa payment, Discover payment, and worst of all, house payment. Rule One teaches us to lag one month behind with our expenses. What we make in January, we spend in February - you know the drill.

You might consider finishing off the emergency fund soon after. Mr. Murphy is the reason we do this. When the transmission goes out on your car, you have a couple grand saved in your emergency fund to take care of it. If your child breaks an arm you have the money to take care of it. If you lose your job, you have the money to take care of it. Remember, if something can go wrong, it will. I addressed the question of why people desire to live so close to the edge in Paycheck to Paycheck. I didn’t come up with the answer to that question there and honestly I don’t know if I ever will.

“Meet Murphy”, however, is not about getting your emergency fund together. You already know you should do that. This is about the strange phenomenon that takes place once you do have your emergency fund in place.

Perhaps you also have noticed that bad things seem to happen to those who are unprepared. Perhaps the Powers that Be have made it so. Declared in the beginning: “Those who are unprepared shall be punish-ed!” I don’t think so. For the most part, emergencies tend to come up in the lives of unprepared people because they are unprepared. Let’s see if an example will drive this home.

Scenario One: Steve lives paycheck to paycheck and loses his job because of corporate downsizing. Because he needs to meet all of his self-inflicted financial obligations, he immediately goes out to find a job. He interviews with a place and, because he needs the money so bad (his severance money ran out quickly), he accepts a sub-par position paying less than what he made before. That doesn’t matter though because this is only temporary. He just needs a few paychecks to get back on his feet, then he’ll start his real job hunt. Now he’s working at a job that he doesn’t like, for less money, and still waiting to find some spare time so he can begin his job hunt. The car needed over $2,000 worth of repairs last week so he had to charge the entire amount to his credit card. Once he pays his debts off he’ll be able to justify working a little bit less so he can start his job hunt. Little does he know that his house needs a new roof…Steve’s response: “I’ve been dealt a bad hand. I can’t believe my luck.”

Scenario Two: Stan spends in February what he makes in January. He does not live paycheck to paycheck. Not only does he lag one month behind in his spending, he also has four months’ of expenses in a money-market account earning a paltry amount of interest. The account is easily accessible. He can have any money he needs from there simply by writing a check. Stan loses his job at the same company as Steve for the same reason. He begins looking for a new job full-time. He interviews at the same place Steve does and is even offered the same position as Steve but he turns it down. The pay wasn’t as good as his previous job, and he didn’t know if he’d like the work environment. He continues searching and finally, after two months, lands a job at his old company but in a different division. He’s now making five percent more at the same company that he loved working for anyway. Now he’s working on replenishing his emergency fund reserve. Two weeks later the car needs $2,000 of repairs. Stan can’t believe his luck, but he pays the $2,000. One week after that the roof starts leaking. Knowing that bad things come in threes, Stan pays for the new roof. His emergency fund is tapped quite a bit. At the moment he could maybe only go one month on the money he has left - but he made it - and he’s still debt free. Stan’s response: “My emergency fund took a hit, but I’m already rebuilding it. I’m glad it was there. I now have a better job, with better pay. All these things worked out for the best in the end.”

The fact of the matter is, when Mr. Murphy knows you have an emergency fund, it’s as if he just doesn’t want to mess with you. This is the strange phenomenon. Unexpected things happen to everyone, but not everyone classifies these things as emergencies. Why? Because they aren’t. Those who are prepared have their money in place. They’re ready for the unexpected and when it comes, they just roll with the punches, replenish their fund, and continue building their house of wealth, one brick at a time.

I’m going to attempt to draw a line between extreme frugality and having a simple mentality of frugality. Extreme frugality can be detrimental to, well, your enjoyment of life. However, if you want to channel this extreme frugality for a very short amount of focused time, then I say go for it. An example might be when you need extreme frugality in applying your debt snowball to smash debt. Once this extreme phase of frugality is over, keep a constant mentality of frugality to make sure you stay the course you’ve so dutifully plowed. So, let’s talk about attaining a mentality of frugality.

Frugal.

The word itself sounds kind of nerdy. But being frugal does not mean you’re being cheap. So many times I see those words interchanged. Cheap means you deliver sub-par work, products, performance, or assistance in some way. Dictionary.com’s definition of frugal, however, is very different:

Economical in the use or appropriation of resources; not wasteful or lavish

Beautiful.

When you budget, you “appropriate” your resources to yourself and/or your family, separated by categories. Each month you sit down and say, “Okay, we made this much last month, where should the money go?” You’ll find that budgeting will help you maintain this mentality of frugality.

I love to give my mother-in-law (who is not your typical mother-in-law, she’s great) a hard time about one of her favorite things to do: shop. Now I’m not against shopping - as long as I don’t have to go. What I love is when she says something like this:

“This shirt is normally $40, but it was half off, so I saved $20!”

I say she spent $20.

I’m afraid people are losing their mentality of frugality quickly. One reason is because they run around with shiny plastic cards that allow them to buy things they can’t afford. Another reason is because the advertising today seems so much more in-your-face. It’s everywhere - absolutely everywhere. It’s all over the internet. We have whole industries built on the fact that we need blockers to stop popups from jumping us in a dark alley. So it’s really a two-pronged attack coming our way. We have easy access to funds that aren’t ours, that charge exorbitant interest rates, and we are bombarded by advertisements.

So it’s getting tougher and tougher to not be “wasteful or lavish.” But it can be done. In Thomas Stanley’s “The Millionaire Next Door” he teaches us that the wealthy really do have this mentality of frugality (shall we give it an acronym - MOF). What do the millionaires do? They shop for bargains. They clip coupons. They buy used cars. Only half of them even carry a mortgage. They don’t finance things that go down in value (such as cars, furniture, plasma TVs, or groceries) That’s why they’re millionaires! And don’t use the excuse that it’s because they have an extremely high annual income. Stanley shows us with study after study that just because you have a high income, does not mean you have a high net worth. They are millionaires because they MOF and work extremely hard. Read the book if you don’t believe me.

So why don’t we maybe adopt the lifestyle that really does lead to true financial security? Why don’t we MOF a bit? Forget the popups, the billboards, the commercials. Be “economical in the use or appropriation of resources; not wasteful or lavish.”

You might have read about our quest to find a rocker in the Garage Sale Lady article - this is a prequel to that.

My wife I and were at R.C. Wiley’s looking for a rocker a few weeks ago. We didn’t really find what we wanted, so we began to make our way out of the store. As we were leaving I couldn’t help but overhear a snippet of the conversation between a salesman and a customer. He had a little clipboard out and appeared to be running some numbers. I heard him say, “If you make it a 7-year deal, your monthly payment for the couch would only be $26.

I ran the numbers when I got home. I didn’t hear how much the sticker price for the couch was, so I’ve assumed an interest rate of 5% - which I think is downright generous. That lady was going to spend $1,802.80 on a couch - over a seven year period. She was haggling with the man over the monthly payment - not over the sticker price of the couch. For every year he was tacking on to that financing plan - she was paying more for that couch.

I’ve been paying more attention to the advertising done by credit card commercials lately. Just the other day I heard on the TV that if I wanted to support the U.S. Olympic team then I should get my Visa Olympic Card. “The only card accepted at these summer games.” And I used to think I was somewhat patriotic.

Credit is getting absolutely out of control. I don’t believe in borrowing money for anything but a home. And even then, I plan on putting down a hefty down payment as soon as my wife and I decide we’re no longer renters. You can read about my stance on mortgages in this article.

Millionaires do not use consumer credit. Read about that in Dr. Thomas Stanley’s book “The Millionaire Next Door”. I firmly believe that is part of the reason they are wealthy. “Oh, the rich are greedy, they don’t get taxed enough” blah blah blah. The overwhelming majority of them never received any type of inheritance money. They started from economic ground zero - where my wife and I currently hang out.

I’m off topic. Back to credit.

Never borrow money to purchase something that depreciates in value. Yes, Cars depreciate in value. So do boats. As far as I know, so do groceries.

“But I pay off my balance every month with my credit card. I get nifty prizes, airline discounts, and cash back!”

The vast majority of those prizes are never redeemed. You have to spend money to get the prizes. This is what I think happens when you have rewards attached to your credit card (or debit card for that matter - Wells Fargo wants me to join the program for $12 a year). Let’s say you get $200 off of your next airline ticket - or better yet - let’s say you get it for free. You get a roundtrip ticket for free…right. I contest that you subconsciously factor these rewards into your purchases. Because you know you are getting airline tickets or one or two percent cash back you “over-purchase”. You justify purchasing things you wouldn’t otherwise because of those rewards that are sitting there just waiting to be earned. You can argue with me about this - but I’ll tell you this: If it weren’t profitable for the credit card companies, they’d stop. If you aren’t actively budgeting, I wouldn’t touch it.

I challenge you to go against the grain, swim upstream, stand out from the crowd. Destroy your credit cards! Let me know when you have. I’m keeping score.

Once I’ve gotten to know someone for a while, I’ll usually ask the question, “Do you budget?” The response is always interesting. That was how I got into one particular conversation.

My friend went on to tell me that they used to. But they couldn’t have any fun. When you’re young married students (and I am one), it’s true that things can get a bit tight. And my friend was telling me that they would want to go out and do something, but all of their friends would always say they didn’t want to spend the money. So they’d end up just over at someone’s house chatting - then going home.

Apparently there was a lot of stress about money. Things were tight and they were always worried about the car breaking down, or running out of money for groceries. Their solution to take away the stress of very little income? Take out some student loans. He began to explain that since they had taken out their loans (approaching $30,000, and he still has four semesters of school left) they were no longer stressed about money. If the car broke down, they didn’t want to pay for repairs, but they knew they had the money.

I just listened. No stress? $30,000 in debt and still going and they don’t have any stress? I couldn’t believe my ears. This is typical Student Loan Syndrome (SLS).

SLS is rampant on college campuses. You can usually find SLS where you see someone living outside of their means. A lot of times, especially with young married students, they tend to want to take on the lifestyle of their parents. The result is usually a lot of “necessary” purchases that really can’t be afforded by the young couple.

SLS also comes along when the couple is in “economic anticipation”. They know they will have a huge jump in income once the main breadwinner graduates and lands his first big job. So to take out a few loans now is no big deal. The interest rate is unbelievably low, and their will be so much more money coming in, they think they’ll be able to pay off the loan in no time.

How does one cure SLS? Building up a small reserve of one month’s expenses is the first step. This helps the student avoid even the temptation to charge an unexpected expense. Next, the student must get on a budget and stick to it. Some might call me extreme, but if you’re really in need of money as a student, then take a semester off of school and get some. Students are notorious for saying they don’t have any money to spare - as they text message their friend on the latest new cell phone.

To take out a loan because you’re “avoiding stress” is treating the symptom, not the problem. If you want to get to the heart of your money matters then you need to follow the Four Rules of Cash Flow Management. These treat problems, not symptoms.

If you do have student loans - pay them off! If you don’t - avoid them! While many wise people say that you are investing in your education and thus, taking out loans is okay, I just can’t help but think of all those students who have done it debt free. It takes hard work, perseverance, and sacrifice, but it can be done. Get your degree debt free.

Just the other day I was talking with someone about Dr. Stanley’s book “The Millionaire Next Door”. I was making a point of the fact that used cars are really the only cars that middle class people should be purchasing, and that plenty of millionaires still drive used, even though they could afford one, two, three, maybe even four new automobiles per year. It seemed like a solid principle to me: Middle-class people should drive used cars.

The response from my friend was surprising: “Oh, that’s real fair. So only the millionaires get new cars, and all the rest of us have to drive used?”

Re-read that statement.

Of course only the millionaires should drive new cars - they’re the only people who can afford them. Here’s a money managing tip: It doesn’t matter what’s fair or not fair. Would you go out and buy a multi-million dollar home? Of course not. You can’t afford it. So why, why, why then do you go out and buy cars you can’t afford? Why do you shoot yourself in your financial foot? There you are, on your way to some stability and then you go out and buy way, way too much car.

I’ve thought a lot about the meaning behind that comment and our “Jones” mentality and it seems like a clear case of entitlement. Why should we drive used cars? It isn’t fair that only the rich get to drive new cars. It’s not fair, it’s not fair, blah blah blah blah.

Alright, based on the amount of bankruptcies in this country (We’re in Utah - No. 1 state for personal bankruptcies), it’s obvious that this sense of entitlement has over-ridden our sense of…well, just that I guess - our common sense in managing money.

When will we be able to sit back and honestly say to ourselves: “I don’t deserve this.” That takes some guts. That takes some courage. I’ll take a phrase that Dave Ramsey seems to have coined: “Live like no one else, so later you can live like no one else.” Well said. A slight variation of that also applies: “I’ll live the way you won’t for ten years, so that I can live the way you can’t for the rest of my life.” If we could just grow up a little bit and realize that we don’t need everything now, now, now. Sit back. Relax. Ask around. Get advice. And above all, have the guts to say to yourself that you don’t deserve something right now.

It’s ironic that those who have the means, so to say, don’t have this problem of entitlement. That’s why they’re wealthy! That’s where they got their “means”. They don’t feel like they deserve things they can’t afford. So there you have it. The #1 money managing tip I could give you is to not feel entitled to things.

Don’t get me wrong. I love stuff. I love new things. But that does not mean that I deserve all of these things right now. The wise (soon to be wealthy) man will supress his desire for instant gratification for a greater cause. With a longer perspective, we’ll be able to see that although we don’t deserve something at the moment, it doesn’t mean we won’t be able to afford it in the future. Put off what you think you “deserve” now and wait to fight another day. Your finances will thank you.

Heed this warning: Those who feel entitled to things they can’t afford will never get their head above the water. Their money managing capabilities will fall victim to “Death by Entitlement.”

Only 30% of Americans have stopped living paycheck to paycheck. The other 70% of Americans are one paycheck away from financial disaster. I’m reminded of the movie “It Could Happen to You” (starring Nicholas Cage) when I see this statistic. I think we all know I’m not talking about the fact that this 70% also plays the lottery and just might win it big next Tuesday night.

I just don’t think it’s smart to play financial Russian roulette.

So what is holding you back from being able to stop living paycheck to paycheck? Why aren’t you a part of that same 30% that can sleep at night and keep their food down? Don’t delay any longer. Don’t keep playing this game. You owe it to yourself to get a good night’s rest and stash away some cash for a financial crisis. If you’re reading this, you’ll have a crisis eventually - everyone does.

So how can you break free of this vicious cycle and stop living paycheck to paycheck? Stop spending everything you earn! Live within your means! YNAB promotes delaying spending your money for one month and it has seemed to work well for me and my wife. I’ve mentioned this before on the site, but I’ll mention it again because it makes up part of the foundation for financial security.

What you make in January, spend in February. During February, you’ll be making February’s income, you’ll have reserves built up from your Anticipatory Budgeting, and you’ll be spending January’s money. It’s a beautiful thing.

Don’t fret if you don’t have enough money lying around in your checking account to go an entire month without touching a new paycheck. That’s the whole reason I wrote this article. There’s a 70% chance that you don’t have this type of money and can’t stop living paycheck to paycheck. Well stop the nonsense! Start selling some things, lots of things if you have to, take an extra job for a little while, get crazy about scraping by for exactly 30 days — just enough to eek through the month without touching any of that month’s paychecks.

Start tracking what you spend!

Start budgeting!

That alone will save you 10-20% each month. Write down a month in the not-too-distant future where you’ll be able to say, “I lived the entire month of [insert month] without touching any of my paycheck(s).”

Even if you sold some of your most prized possessions, the financial security you would feel from having a one-month buffer built in to your financial system would be worth it. Don’t stand teetering on the edge of financial ruin. You owe it to yourself to get out of this trap–stop living paycheck to paycheck now!

Abraham Lincoln wrote this letter to his stepbrother, John D. Johnston, who had written Lincoln that he was “broke” and “hard-pressed” on the family farm in Coles County, Illionois, and needed a loan. Lincoln’s offer of a matching grant, as we call it today, was a recognition that “this habit of uselesly wasting time, is the whole difficulty,” and that getting into the habit of working was far more important to Johnston than getting a loan.

[Dec. 24, 1848] Dear Johnston: Your request for eighty dolars, I do not think it best to comply with now. At the various times when I have helped you a little, you have said to me, “We can get along very well now,” but in a very short time I find you in the same difficulty again. Now this can only happen by some defect in your conduct. What that defect is, I think I know. You are not lazy, and still you are an idler. I doubt whether since I saw you, you have done a good whole day’s work, in any one day. You do not very much dislike to work, and still you do not work much, merely because it does not seem to you that you could get much for it. This habit of uselessly wasting time, is the whole difficulty; it is vastly important to you, and still more so to your children, that you should break this habit. It is more important to them, because they have long to live, and can keep out of an idle habit before they are in it, easier than they can get out after they are in. You are now in need of some ready money; and what I propose is, that you shall go to work, “tooth and nail,” for somebody who will give you money for it. Let Father and your boys take charge of your things at home - prepare for a crop, and make the crop, and you go to work for the best money wages, or in discharge of any debt you owe, that you can get.

And to secure you a fair reward for your labor, I now promise that for every dollar you will, between this and the first of May, get for your own labor wither in money or in your own indebtedness, I will then give you one other dollar. By this, if you hire yourself at ten dollars a month, from me you will get ten more, making twenty dollars a month for your work. In this, I do not mean you shall off to St. Louis, or the lead mines, or the gold mines, in California, but I mean for you to go at it for the best wages you can get close to home - in Coles County. Now if you will do this, you will soon be out of debt, and what is better, you will have a habit that will keep you from getting in debt again. But if I should now clear you out, next year you will be just as deep in as ever. You say you would almost give your place in Heaven for $70 or $80. Then you value your place in Heaven very cheaply, for I am sure that you can with the offer I make you get the seventy or eighty dollars for four or five months’ work. You say if I furnish you with the money you will deed me the land, and if you don’t pay the money back, you will deliver possession - Nonsense! If you can’t live with the land, how will you then live without it? You have always been kind to me, and I do not now mean to be unkind to you. On the contrary, if you will follow my advice, you will find it worth more than eight times eighty dollars to you.

Affectionately, Your Brother
A. Lincoln

This was taken from The Book of Virtues - A Treasury of Great Moral Stories. Edited, With Commentary, by William J. Bennett. A Touchstone Book. Published by William & Schuster.

So simple.

But few do it.

The reason that so many people don’t live within their means is because they don’t know what their “means” are. It would be extremely difficult to work for a boss that yelled at you for going over budget on a project, but he or she wouldn’t tell you what your budget was.

And people float along from day to day, never really knowing how much they have to spend, or where it’s all going. They might wonder why they don’t have more, or even worse, wish they had more, but they rarely do anything about it.

So - live within your means.

Before we implement this, let’s get a few things straight:

1. You can expect a “raise” in pay. I’m confident you will get it.
2. This will take hard work.

In order to live within your means you have to establish your means. If you don’t know how much you make per month then you are one strange beast my friend. I don’t foresee this being a problem for people. If your income fluctuates then you might want to check out the article about Living Paycheck to Paycheck, but I’m guessing most of us know just how much we made last year (and don’t we wish it were just a bit more).

Establishing your means was the easy part. This is the hard part. I don’t propose that you just kind of estimate, or guess what your expenses were for the last little while, and then decide whether you’re living within your means. I suggest you do look backwards at your check register or bank statements and (unfortunately) credit card statements, to get a general idea of where you were at with your spending. But all that’s really important is the future lying before you. You need to get in the habit of writing your purchases down. That’s the only way to live within your means for the long term.

With new software and online programs devoted towards personal finances, I’ve seen this new “feature” that actually records the transactions that you make using your debit card. Then, all you have to do is allocate what you’ve spent into different spending categories. This may not be good if you really have a problem hanging on to your money.

I’ve said this before, and I’ll say it again. Money management is 90% psychological, and when you have to record every purchase you make then you will naturally spend much less (i.e. begin living within your means). When I was in high school I tried this. I simply wrote down on a lined piece of paper everything I spent for a month. I was shocked at how high the number was. The next month I spent half that amount! And the next month it dropped by another 25%. Oddly enough, I didn’t feel like I was missing out on anything. Naturally, I had much more discretionary income in high school, so such a drop was realistic. However, to see a 20% decrease in your spending once you begin recording all of your purchases is not uncommon. Congratulations on your new raise.

After not recording what you spend for a few decades, it can be a bit difficult to just start right off the bat. I know of no other way though. It’s much like the attempts my wife and I make at limiting our dessert intake. We say we’ll just have one per week, or maybe one per day, or whatever - but that never seems to work. The only time I’ve ever successfully managed to avoid desserts was when I avoided them completely. It’s the same with recording your expenses. Record all of them. Don’t let one slip through the cracks. Certainly a few dimes for a soda are not going to matter to your pocketbook. It will affect your habit formation though - and that’s where it counts.

So record your expenses for a month to see if you truly are living within your means. Work toward a lifetime of living within your means. You’ll be hanging out with the minority - but it feels nice.

Using the title “Anticipatory Budgeting” has allowed me to join the ranks of financial advisors that have coined a new term. Well, I don’t know if this term is new - probably not - so I’m not going to do any coining. At any rate, here’s a solid household budgeting tip: anticipate your expenses.

Maybe I did coin the phrase “Rainy Day” used in the context of anticipatory budgeting. If I did, then I better start saying Rainy Day® (more on these later)! Okay, here’s the #1 household budgeting tip explained in detail:

Anticipatory Budgeting (AB) simply means you anticipate expenditures. I always use the car insurance example because (1) I have to pay it and (2) so does everybody else. My wife and I pay our car insurance premium each May and Novemeber. Some people might pay more frequently, others less.

Let’s pretend our premium is $300, just for the sake of easy calculation. When May rolls around, how many people have $300 just sitting around in their checking account? Very few. So my wife and I simply budget $50 per month ($300/6) into our “Car Insurance” category in the YNAB Budget. I said YNAB for a plug. A household budget can easily consist of pencil and paper - but it would be a bit more tedious.

On this site I call these horrible days of parting (with large sums of money) Rainy Days®.

The advantages to the AB tactic are many:

1. Money builds up in your checking account earnings HUGE amounts of interest!
2. Okay, sorry. Money does build up in your account, giving you HUGE amounts of comfort. Not too much interest.
3. You don’t have to charge the purchase, saving you an average of 18%.
4. Overdrafting risk: virtually non-existent. You’d have to spend all of these Rainy Day® amounts and any money you had already earned in the current month (per Rule One). Fat chance for an overdraft.

The disadvantages? Sorry, they must have skipped my mind.

So what type of purchases would need an AB approach? What are possible Rainy Days®? Well, depending on how you handle December, Christmas could be a full-on blizzard. We, as a society, are notorious for charging up our cards for Christmas because it’s not a part of the household budget. Budgeting money AB style each month will help make Christmas a lot merrier. Car insurance I mentioned, any private health insurance premiums you need to pay, school tuition, school books, vacation, car repairs and maintenance (you kind of have to estimate this one), subscriptions, membership dues, etc.

The list goes on. The YNAB Budget will help you with these Rainy Days®. And if you don’t feel like forking over any money for the program (you must be on a very tight budget - I commend you!) then use the AB approach with whatever type of household budgeting system you do use. It works. Heck, maybe you could AB yourself a copy of YNAB. If you want it in six months you need to put away about $4 a month.