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Automation: Add a “Stupid Mistakes” sub-savings account

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Let me show you how I handle stupid mistakes like traffic tickets in my automation system for personal finances.

 

One of the most common reasons people can’t get ahead is expenses they just didn’t expect. I constantly hear things like this:

  • “I was just about to pay off my credit card debt FOREVER, and then I had to get a new ___ for my ___”
  • “God, I didn’t expect to get that traffic ticket.”
  • “Every time I think I’m getting ahead, my car breaks down or I have to replace some appliance.”

These “unpredictable” expenses are very predictable

Here’s the trick: A lot of what seems unpredictable is extremely predictable — over the long term. What seems like surprise expenses is actually not a surprise if you analyze your spending for the past 5 years. Which of course nobody does.

For example, that “surprise” car repair? It might not happen in the same month, but every year, you might average spending about $400 on car repair. That’s $33/month. Once you know that, set up an automatic deposit into your sub-savings account and you’re done.

Keep a “Stupid Mistakes” sub-savings account

I keep a sub-savings account called “Stupid Mistakes” in my Capital One 360 (formerly ING Direct) account.

 

I’ll explain some of the other ones later

What I use “Stupid Mistakes” for:

  • Traffic tickets
  • Late fees or penalties that I can’t negotiate out of
  • Re-buying things that I lost

I save $100/month into it. If there’s anything left at the end of the year, I take out 20% to reward myself, and roll the rest back into my main savings account.

Keep a “Stupid Mistakes” sub-savings account. Just the simple fact of having one will sharpen your focus on avoiding the mistakes in the first place. And when you do make a stupid mistake, you’ll be able to use your sub-savings account as a buffer to keep your automation system on track.

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65 Comments

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  1. Thanks for the post!

    I read this in the book but what I now understand it the part about rewarding yourself at the end of the year. Never thought about it!

  2. “I save $100/month into it. If there’s anything left at the end of the year, I take out 20% to reward myself, and roll the rest back into my main savings account.”

    Does this mean that come Jan your Stupid mistakes fund is empty?

  3. I love using ING for these types of sub-accounts. My ING dashboard looks very similar to yours. I have a house repair fund, a vacation fund, tax fund, emergency fund, and general savings fund. The ability to create these sub-accounts is probably my favorite feature of ING.

  4. Isn’t this a new name for the emergency fund?

  5. I used to use sub savings accounts but they didn’t work as I expected. I had a great system where every month I rationed my savings into sub-accounts based on percentages. However, due to transferring between accounts I got a threatening letter from ING saying that if I transferred more than 6 times in a month it was considered money laundering and if it happened 3 months in a row they’d close my account.

    So, the system is still great in theory, but be careful about how you implement it. I use the same system now, I just track it from one account in an Excel spreadsheet.

  6. I’m with TheDebtHawk.com. I have something like 10-12 ING subaccounts for various things. It is also one of my favorite features. Since I’m a bit OCD about my savings, this allows me to easily break things out into specific accounts and therefore specific goals.

  7. @Sean. I ran into the same issue, but with a little restructuring you can eliminate some of the pain. Rather than move a bunch of money into one ING account and then transfer from there to all of the others, set up the transfers to pull from an external account into each sub-savings account individually. That was my biggest source of transfers, and now I don’t come close to the limit.

  8. I like what you say about “unpredictable” things being predictable. We don’t always know what’s going to happen but we know something will. As you said, with sufficient historical data we can usually know in advance the likelihood of future “surprise” expenses.

    That’s how insurance companies operate. In a way we’re simply starting a very small (one customer) insurance company for ourselves. By anticipating the likely losses and spreading it out over time it becomes a controllable expense.

    I would not stop at the end of the year and empty the account but leave the balance there and stop paying into it. It would be there as an emergency fund but you wouldn’t have the monthly expense.

  9. These are great ideas; instead of subaccounts with ING; I use the Freedom Account spreadsheet by Mary Hunt; it’s the same thing using the ING on paper instead; with 10 subaccounts. Just type in “freedom account mary hunt” and you will find the spreadsheet ready for download. Really easy to use.

  10. @Sean, @Brian Ramsay. These aren’t really sub-savings accounts, each is a different savings account with a unique account #. As long as you don’t transfer money to one of these accounts more than 6 times a month you won’t receive the nasty letter.

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