Easy help setting up a Freedom Account

[Kris10Leigh]

Talking to me like I'm a kindergartener, please help me understand how to set up a freedom account. DH will be be reimbursed approximately $3000 for his recent work trip. He suggested we use it to pay for Christmas and it got me thinking about a Freedom account. What kind of things go into it? How do you keep track of it? How do you fund it? I barely know what a Freedom account is.

Thanks!

[b4freedom]

Originally Posted by Kris10Leigh

Talking to me like I'm a kindergartener, please help me understand how to set up a freedom account. DH will be be reimbursed approximately $3000 for his recent work trip. He suggested we use it to pay for Christmas and it got me thinking about a Freedom account. What kind of things go into it? How do you keep track of it? How do you fund it? I barely know what a Freedom account is.

Thanks!

Open an INGDIRECT.COM or HSBCDIRECT.COM account. You'll earn more and have better access to your money.

With that said, it depends on what you are talking about. There are different products called "freedom accounts". Are you talking about a financial savings account or are you talking about a health care spending account?

[Ima saver]

I am not sure what it is either. How did you hear about it??

[Kris10Leigh]

I'm sorry. I thought it was a rather universal term. I'm not sure where I heard about it exactly except to say on message boards. I research message boards frequently. I thought I saw the term mentioned here once.

What I am referring to is a savings account which is used for planned and unplanned expences. For instance, keeping it simple:

Expected annual expenses (These are hypothetical numbers):
Christmas gifts $2000
Medical expenses: $1200
Lawn services: $500
Car insurance: $1000
Total: $4700
Total/12 months=$391.66

So I would need to fund the account with $391 per month and then use the money for those types of expenses.

Obviously I have SOME idea what it is but implementing it is a different story as is coming up with categories.

I was thinking:

Gifts
lawnservice
local amusement park season pass
school expenses (social fees as a teacher, school supplies, fund raisers, etc.)

[Ima saver]

Sounds like you need to open a savings account or money market that pay at least 5%. Gmacbank.com would be a good one.

[robex]

We have a freedom account. We have $600 automatically deposited into it on the 15th of each month. The money is meant to cover:
Christmas gifts
2 car insurances
property taxes
house insurance
our yearly vacation.

If we choose to spend more in one category, the extra money has to come from somewhere else. We've done this for 7 years, starting with property tax and one car insurance, and we built it up from there. It works well for us, I don't have to think about the money and it's there when we need it.

[Bookie]

I think Mary Hunt of Debt-Proof Living was the originator of the term "Freedom Account"

[Ima saver]

I think you are right. I have that in my checking and I put in $100 a week. That covers all 4 car insurances, house insurance and property taxes. I have just never called it a freedom account.

[Bookie]

Me neither. I just use a dedicated savings account with a monthly transfer for things like insurance.

If I recall, Mary Hunt's idea was that setting up a separate account to cover things like insurance would protect the household from dipping into regular savings. First, it would make the saver actually calculate and budget the monthly saving needed to meet annual or quarterly expenses. Second, she suggested reviewing average "emergency" spending (the hotwater heater that went) over past years and saving an average amount to provide for the unexpected.

(I haven't read her book in a couple of years, so some of this may be muddled.)

[b4freedom]

You don't need a freedom account. Basically, a freedom account is just another tool that an institution uses to help overspenders save for those big purchases at the end of the year. It's a nice concept, but what is your return? What is your return on investment? Is it high or low? My local bank calls them "Christmas Accounts". You decide how much you're going to spend on Christmas and then the bank sets that money asside for you. However, the interest rate is around 1.5%. That sucks for two reasons: 1) It's below the rate of inflation. 2) I can do better.

To summerize: Open an online savings account (like ING or HSBC) and set it up to automatically withdraw a specific amount. You'll have more money for Christmas.

[Kris10Leigh]

Thank you all for your help. Here is what I decided to do:

For simplicity sake, I'm keeping my savings account as is for now.

The account will pay for the following yearly expenses:

Christmas: $1785
Birthdays: $595
Amusement park: $350
Childcare: 4140
Lawn care: 600
School expenses: 200

$320 per pay will go into this account for these purposes.

[Bluezy]

How old are your children? If they are small (primary or secondary) you might want to investigate a Coverdell Education Savings that would earn more interest tax-free, while funds would be available for qualified education expenses. You can always place the rest in an emergent account.

All the best to you in your savings!

[Ima saver]

You can just keep track of it on paper. I keep mine in my checking and I probably shouldn't because I earn no interest on it. However, that is my back up money in case I accidently overdraw my account.

[Kris10Leigh]

Back up money in the checking account is a very good idea! However, I'm not disciplined enough to not spend it! LOL!

My children are young 4 and 6. The estimated school costs are actually more for me than for them. I'm a speech therapist and I work in the schools. Last year I worked in three buildings and each building had their own social fund and even the speech therapist group had one! So I was paying $20 to one school, $40 (!) to a second one $20 to a third one and $10 to the speech fund. All those little fees crop up at the beginning of the year and I am never prepared for them. Then there are the kids' school supplies. My preschooler doesn't have many yet, but I'm shocked by my first graders' list! Whatever happened to a list consisting of pencil, paper, erasor, and one box of kleenex?

[Ima saver]

That is why I use the envelope system. Anything put in my checking account is immediately written out for bills, with no cushion. I wirte the checks and put the exact amount of cash to cover the checks, into the checkbook.
If I used up my back up money in the checking account for something else, I would not have the money to pay car insurance, house insurance and prop. tax.

[MairGrif]

When I first got serious about fixing my finances last year, I happened to find Mary Hunt's Debt Proof Living site in my research. I read her book, and subscribed to the site b/c her strategy is structured, and it has worked well for me. The three principals are simple, Live below your means, save money for emergencies and give to charity. The Freedom Account concept is based on keeping yourself out of debt - instead of thinking you have all this extra money (or not) after the monthly bills are paid, she says to write down all the other expenses you have incurred over the past year - known and unknown, like car insurance and unexpected car repairs, gifts, etc. You then create a category for each, add up or estimate how much will be spent on each in a year, and divide by 12. that amount should go in each category each month. That way you are creating a monthly expense for each 'nonmonthly' expense. She suggests keeping this in a separate checking acct (the whole amt together), and tracking each category on a page in a notebook. Most people I know either keep most of the money in an online acct (ING, for ex.) and either link that to their reg. checking acct, or to a separate checking acct and transfer money as needed. Many people add goals to their FA's - to help them save for things. It depends on how you want to use it, and what your needs are. A lot of people I know who use it say it was one of the keys to helping them finally balance their finances.

[Ima saver]

I have subscribed to her newsletter for years and I really love it. I did order her book, but gave it to a young lady asking for help on another forum. So I did not read it. But I guess i could have a newsletter too, because the freedom account I have had for almost 40 years, it just did not have a name.
I came up with it when I started having to pay property tax on my first house and could not get that much money in just one month. After that, I saved the money for taxes out of each paycheck.

[Diolla]

I read Dave Ramsey's book The Total Money Makeover first and he calls them 'Sinking Funds' then I read Mary Hunt's and she called them 'Freedom Accounts' Same idea different name.

I budget a small amount each payday for things like Car & Homeowners insurance (which came due this month $600+) & Property Taxes. I find it very nice to have those funds set aside (earning interest, Ima) until I need them. I also keep budget money in a regular bank savings acct for things that aren't bills but that aren't regular expenses like Gifts, Clothes etc. I use my Visa card to pay for them then transfer the money to checking to pay the Visa bill. I keep track of it all with a budget program I found online so I always know how much is available to spend.

I used to keep real paper envelopes with the cash but then through this site I found this program that tracks it all. I am still getting comfortable with the system but if it works for me I will earn more interest and get cashback from my Visa.

[lrjohnson]

Originally Posted by Kris10Leigh

Thank you all for your help. Here is what I decided to do:

For simplicity sake, I'm keeping my savings account as is for now.

The account will pay for the following yearly expenses:

Christmas: $1785
Birthdays: $595
Amusement park: $350
Childcare: 4140
Lawn care: 600
School expenses: 200

$320 per pay will go into this account for these purposes.

One negative side affect of these accounts is that it does not always encourage maximum cost savings. I think they are a good idea, don't get me wrong, I believe in budgeting for non monthly expenses. However, when Christmas comes along, remember that you do not need to spend $1785. Even if you have it to spend, you shouldn't always spend it. You still want to look for ways to make an excellent Christmas for $1600, or $1400, or less. You get the idea. Leftover is GOOD in these categories; you can put it to another use (debt, retirement, other long term items-mortgage, college funds, etc.)

[autoxer]

I use an ING account for my Freedom Account and an Excel spreadsheet to help me track which category has how much in it. Here is a sample of my spreadsheet: