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As I have transitioned from slaying my CC's to establishing more savings, I am curious how granular others get with their savings. I have read the great posts on freedom accounts, thank you diana!

Here is the plan I am trying at the present time and I would love to hear what others think and what others are doing.

I am sending 25% of my paycheck to savings with the following breakdown:

20% - eFund
30% - Freedom Account
10% - Irregular Expenses
40% - IRA

Now, the reason my IRA percentage is so large right now is because I am trying to max my contributions by the deadline next year. Also, I have not really gotten to the granular part where I detail what composes the freedom account versus what composes the irregular expenses.

Right now, I am thinking that the freedom account will contain savings for home repair projects, car savings, etc. and the irregular expenses savings will account for things like new school clothes, car maintenance, etc.

I am sure these percentages will adjust as I find what is working and what is not working. But I am curious if others detail out exactly what composes their freedom account or how you have your savings goals defined.

I appreciate your feedback on my first attempt at this as well as your experiences of what has worked for you.

Thank you.

DT
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It's all lumped into one ING account for me. It should really be more organized but I basically just use that account for a single repository for all the excess cash I have, including the living expenses while I max out the 401k for the year. So I'm practically living off savings until I can drop the contribution rate back down to a more reasonable level for next year.

But if you're planning on doing a percentage split how are you going to keep track of how much money you have in each account? I assume the IRA will be one account but what about the other 3? Do you want to have 3 separate accounts or keep track of the balances in just one?
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in an ING savings account you can actually create special compartments for all the different things you may be saving up for.

check into it.

coolprash
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I have my e-fund and Freedom Account in a single account at ING. Then I have MS Money subaccounts where I keep track of the specific categories. Certain categories (property taxes, insurance premiums) get a defined contribution every month - 1/12 of the annual expense. The others (auto repair, clothing, gifts) get as much as I can spare until the reach my target amount. The e-fund gets 10% of each paycheck, period.
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I handle my savings somewhat differently. My "freedom" account is not a set percentage but a set amount. For instance, I have figured out the catagories that I need for the irregular payments, such as $100 a month for the cars (tabs, maintenance, tires, brakes, etc.), $100 a month for the kids (sports, book club at school, PTA fees, camps, etc.), $50 a month for charity, $50 a month for gifts (christmas and birthdays), $75 a month for vacation, etc.

I know that I will have these expenses no matter what, so the percentage doesn't matter. I consider my freedom account payment to my second checking account (free with free checks at a credit union) to be an expense like paying the mortgage.

The other savings (efund and retirement) are then distributed in order of funding the efund then the retirement. Once we had 6-12 months of living expenses in the bank, we quit saving in the efund and put the rest into retirement (401K, IRA, etc.).

HTH,

L

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as well as your experiences of what has worked for you.

I have one money market account at my credit union that holds money for this month's property tax bill (approximately $1,100), next year's Roth IRA contribution ($3,500), and about half of my contingency fund ($5,000), for a total of $10,000. No, I am not that math challenged--by keeping the balance at $10,000 or more my credit union pays the highest rate they offer on money market accounts, so the extra $400 helps a little on the interest rate the account earns.

I don't have a separate breakout for car repairs, replacing major appliances, unreimbursed medical expenses, etc., so on occasion I will tap my contingency fund for these expenses. It also means that I keep on feeding that account enough each month to handle the annual property tax bill, the annual Roth IRA contribution, and the various "unexpected" expenses we can all expect.

Actually, I overfund that savings account and occasionally I will trim it back by moving some money off to long-term investments or other instruments.

(The other half of my emergency fund, current redemption value of $7,560, is in I-Bonds, all of which are now past the 6-month period of illiquidity but still within the 5-year period of 3-month interest forfeiture--the amount quoted being after the interest forfeiture. And, yes, I am well aware that this ends up being a little more than half of my contingency fund.)

I also tend to keep a "buffer" in my checking account that I will use for small unexpected expenses instead of tapping into my contingency fund. In fact, I try to not tap into my contingency fund if at all possible and, if I do, I examine my recent month or few months spending to double-check that I am not just living beyond my means.

It may be a little too unstructured for many people, but it is a method that has worked out well for me. There have been some adjustments over the past 22 years, specifically increasing the target amounts and increasing the monthly savings amount, not counting the bump up for property taxes, but overall it has worked quite well for me.

I also have a 403(b) tand taxable investments that I am contributing to on autopilot.

I guess that really doesn't help you with the target percentages. The best I can suggest is that different people's financial situations are different so you may want to try your percentages for a few months and see how it works. Some adjustments may have to be made, which isn't the same thing as throwing away the plan. It also depends on how you classify various expenses.

Good luck with your plan!
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But if you're planning on doing a percentage split how are you going to keep track of how much money you have in each account? I assume the IRA will be one account but what about the other 3? Do you want to have 3 separate accounts or keep track of the balances in just one?

Right now, it is all in one ING account but I have a spreadsheet that breaks it down by the percentages I listed in the original post.

Once I get my IRA savings going, I will obviously be putting that money into an IRA but all other money would remain in one ING account with a "virtual" breakdown of categories.

I was curious how others have virtually or physically broken down their categories.

DT
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I guess that really doesn't help you with the target percentages. The best I can suggest is that different people's financial situations are different so you may want to try your percentages for a few months and see how it works. Some adjustments may have to be made, which isn't the same thing as throwing away the plan. It also depends on how you classify various expenses.

Mark,

Thank you for the response. I was thinking of reposting my original question as I didn't think I worded my question clearly.

I see others here mentioning they have $x or x% for car maintenance, vacations, etc. where what I am doing, at least initially, is having the freedom fund that will just cover what we need. If a car repair comes up, take out the money. If we want to go on vacation, take out the money.

I don't know if it will work over the long term but I don't think I need to get too granular with my savings outside of IRA contributions, eFund and "everything else".

As you said, I think the best thing to do is stick to this plan for a bit and see how it works out. If I find that we are using up too much of the freedom account for one thing in particular, then maybe that indicates it should receive it's own savings.

BTW, I have this as a "virtual" breakdown as all of the money is currently in the same ING account. I don't want to physically separate the accounts as it will currently earn more interest together. But I like your approach that once a certain level is met, start breaking some money out into a little better investment options.

Thanks again for the feedback.

DT
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dsemmler,

You wrote, BTW, I have this as a "virtual" breakdown as all of the money is currently in the same ING account. I don't want to physically separate the accounts as it will currently earn more interest together.

Really? Unless you're putting the money into some instrument like a CD, this shouldn't be true. At least with the ING Orange savings account, there are no ladders or minimums to earn interest and the interest rate earned is the same whether you have $1 or $10,000 in the account.

Proving this point mathmatically is a pretty simple exercise. Assume you have two separate accounts (A and B) each earning some rate (r). The total interest earned for a period (I) is:

I1 = (A * r) + (B * r)

If you combine these quantities into a single account you get:

I2 = (A + B) * r

And the disributive property of multiplication tells us that:

(A + B) * r = (A * r) + (B * r)

Therefore I1 = I2. So, as long as the rates are the same for the two accounts, the total interest earned shouldn't vary by more than a penny per month (due to rounding error).

- Joel
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Joel,

Thank you for correcting my wishful thinking. While I am not currently investing in any CD's, I do plan to do so once my base eFund is at a comfortable level. However, as you mentioned, the interest is the same when in the standard ING account.

DT
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