A Better Way to Manage Your Everyday Money - Book - Page 108
Periodic short-term savings
A periodic short-term savings is used to pay a large expense that is predictable in both the
amount and frequency. Examples could include:
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Renewal of vehicle tags
Quarterly estimated income tax payments
An annual HVAC maintenance contract
Annual preparation of tax returns
Having the gutters cleaned each year after the leaves stop falling
A periodic savings plan spreads the cost of a large expense over as much time as possible,
thereby reducing the impact of the large expense on your net cashflow.
The set-aside amount for a periodic savings is the expected amount of the expense divided by the
number of set-aside opportunities
before the expense comes due.
For example, an annual prepaid
service agreement for HVAC
equipment costs $370.00. The
contract is paid in full on March
1st each year. Accumulating the
full payment over 12 months is
done by setting aside $30.83
($370 / 12) per month in a fixed
amount savings ledger. The
money in the savings ledger is
deducted automatically when the
annual payment is made by linking the HVAC
bill to the savings.
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