Use a Sub-Savings Account for Unexpected Expenses [Money Tip]

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It would be nice if we were always prepared for flat tires, traffic tickets, laptop coffee-spills, emergency flights, and other unexpected expenses. But we're not—even though they consistently happen, month after month.
Photo by Adam Tinworth.

"The real troubles in your life are apt to be things that never crossed your worried mind, the kind that blindside you at 4 pm on some idle Tuesday."
— Kurt Vonnegut
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Ironically, the expenses themselves may be unexpected, but the occurrence of them is very predictable. For example, here's a late fee that I just got:

I wish I hadn't gotten this, but things fell through the cracks with my book launch. After learning this the hard way a few times, I decided to get proactive about unexpected expenses.
I've set up a sub-savings account and now save about $150/month for unexpected expenses. (Note: You can start with $20/month and work your way until you find the right amount.) At the end of the year, I sweep the account, taking any extra that's still in it, and move it over to my "general" savings account.
In your savings account

In my ING savings account, I create sub-accounts by logging into my account, clicking "New account," and following the instructions. It will seem like you're creating an entirely new savings account, but you're not — after creating it, it will be a sub-account within your main account. ING Direct works best for me. I haven't found another savings account that lets you create sub-accounts, but you can always use Excel.
These sub-savings accounts are incredibly useful for focusing your savings. It's easier to save for specific goals rather than a guilty, "I should save" account.

Book excerpt: Unexpected income & expenses
From Chapter 4 ("Conscious Spending") of my new book, where I describe how to handle unexpected income and expenses:

We all have unexpected expenses each year. But if you look back, you'll notice a pattern: Car repairs, Christmas/birthday gifts, or last-minute travel. Given enough time, these "unexpected" expenses are fairly predictable. Start saving—even $20/month—to get ahead of these expenses. When they arise (and they will), you'll be prepared.
This is a guest post by Ramit Sethi, the New York Times best-selling author of I Will Teach You To Be Rich, a book on optimizing your personal finances.

Read book excerpts, check out I Will Teach You To Be Rich at Amazon, and forward your receipt to [email protected] to get bonus content (interviews, spreadsheets, and more).


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