How to Budget for Large Expenses with EveryDollar

You know what’s worse than a big expense? A big expense you forgot to budget for. Whether it’s new tires, your annual insurance bill or Christmas gifts, those costs can really throw off your budget when you’re not prepared.

That’s where EveryDollar funds come in. They help you save a little each month for those bigger expenses so you’re ready when it’s time to pay up.

Let’s look at how funds work, how much to save each month, and how to build them right into your EveryDollar budget.

How Do You Calculate Your Fund Goal for a Large Expense?

To calculate your monthly fund goal, subtract what you’ve already saved from the total cost, then divide what’s left by the number of months you have left to save.

(Total Cost − Current Savings) ÷ Months Remaining = Monthly Contribution

Here’s how to put real numbers to it:

• List the expense. Write down what you’re saving for and what it will actually cost. Look up the real price instead of guessing.
• Set a deadline. Pick the month the bill is due or the purchase will happen, then count the months between now and then.
• Subtract what you’ve already saved. If you’ve got $300 set aside, take it off the total.
• Divide what’s left by the months you have left. That’s the amount you’ll plan every month.

Say you want $1,200 set aside for car repairs. You’ve already saved $300, and you have 10 months to go: ($1,200 − $300) ÷ 10 months = $90. That’s how much you’ll put in the planned column of your EveryDollar budget every month.

If the monthly amount is more than your budget can handle, look at the expense. A flexible expense like a vacation can wait, so give yourself more months. But if it’s a bill with a fixed due date, like an annual insurance premium, you’ll need to cut back somewhere else or bring in extra income to cover it. Adjust the amount in your EveryDollar budget to make it work.

What Are Sinking Funds Good For?

Funds are great for saving up for large or irregular expenses a little at a time. They work right alongside your regular monthly budget, helping you plan for bigger expenses without having to cover the whole cost in one month.

Most funds fall into two buckets: things you want and things you need. But first, here’s how a fund works differently from a regular budget item:

What Are Examples of Fun Funds?

Fun funds help you save for bigger purchases and experiences you want, like vacations, gifts and home upgrades. They’re called fun funds because you’re setting aside money for the fun stuff!

Some things you may decide to save up for include:

• A new-to-you car
• Any renovation to your home or yard
• Concert or sporting event tickets
• Christmas gifts
• Hobby upgrades like a new guitar, mountain bike or digital camera
• A family vacation

For example, instead of daydreaming about a backyard pool, you can start saving now to make it happen by next summer!

What Are Examples of Essential Funds?

Essential funds help you save for bigger expenses you know are coming, like annual insurance or car maintenance. These are the things you need to pay for, so planning ahead keeps you from dipping into your emergency fund.

Here are some examples:

• Home repairs
• Car maintenance
• Annual bills
• Doctor visits
• Technology replacement
• Annual insurance payments

Rosetta, a member of THE Ramsey Baby Steps Community, shared a great reminder about the difference between sinking funds and emergency savings:

"[Sinking funds] are not for ‘what ifs.’ They are for large expenses you know are coming. Anyone using a sinking fund for a ‘what if’ or a ‘this could happen’ is simply growing their emergency fund."

You know these bigger expenses are coming, so be prepared! A yearly insurance bill of nearly $500 doesn’t hurt so much when you put aside $40 every month, now does it?

How Do You Create a Fund in EveryDollar?

To create a fund in EveryDollar, add a budget item, tap “Fund,” then tap “Make This a Fund,” and enter your current balance and target amount. It’s that easy!

So, let’s say you’re saving for an $800 trip to the beach and already have $100 saved up. Here’s how you’d create a fund in EveryDollar:

Step 1: Pick which category you want to add your fund to (maybe “Lifestyle” or a new one you create).

Step 2: Add a new budget item called “Beach Trip.”

Step 3: Select "Fund" from the list of options.

Step 4: Click “Make This a Fund.”

Step 5: Enter your current balance of $100.

Step 6: Enter your target amount of $800.

Step 7: Click “Save.”

You created a fund! You’re one huge step closer to some major relaxation, because this trip is happening, folks.

How Do You Manage Your Fund Each Month?

To manage your EveryDollar fund, you’ll need to add money toward your goal each month, track any spending from the fund, and keep an eye on your balance.

1. Save money toward your goal every month. You’re just $700 away from making those snorkeling and glass-bottom boat tour dreams a reality. Planning a trip in five months? Some quick math tells us you’ll need to set aside $140 in each monthly budget to make it happen, captain. That’s the formula at work: ($800 − $100) ÷ 5 months = $140.

Enter this month’s $140 in the planned column, and watch your total fund increase to $240! You just took another sweet leap toward getting your toes in the sand.

2. Track purchases made with your fund money. When you book a beach house for your stay, make sure you record that expense in EveryDollar. As you add the transaction like any other expense in your app, select “Budget Item(s),” and put a check mark next to your fund’s name. That way, the money comes out of your fund balance instead of being counted as spending in another budget line.

3. Review your fund balance. At the end of the month, check how much money you’ve got left in your fund. Whatever you haven’t spent automatically rolls over to the next month so you can keep saving until you’ve covered the cost of your trip.

Here’s how your $800 beach trip fund could look over five months:

Notice how the $300 deposit and final $500 payment came straight out of your beach trip fund. By assigning those transactions to the fund, you can see exactly how much you’ve saved and spent without counting those purchases twice.

As soon as that last dreamy picture hits Instagram, pull up EveryDollar and say goodbye to the beach trip fund. But don’t be sad! All that money you were putting toward your getaway every month can now make its way into a new fund. And you get to decide what it will be!

Where Should You Keep the Money You Save for Large Expenses?

Keep your fund money in a separate savings account, preferably a high-yield savings account, so it’s separate from the money you spend every month.

The money in your checking account is meant to be easy to access so you can pay for day-to-day expenses like groceries, gas and everything else. Having a separate savings account for your fund money helps keep it tucked away until you need it. Before you open a savings account, make sure of two things:

1. The account doesn’t charge unnecessary fees.
2. You transfer your planned fund contributions into savings each month so your bank balance matches what you’re tracking in EveryDollar.

And don’t worry, you don’t need a separate savings account for every fund! One account can hold your beach trip, car repair and insurance money together. EveryDollar helps you keep track of how much you’ve set aside for each goal.