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A Revolving Savings Account: A Financial Hack to Make Life Less Stressful.

With the holiday season behind us and the New Year just beginning, right now is the most popular time to set goals and intentions for the year. Along with our physical health, many people set a goal to improve their financial health. Well lucky for you, I’m sharing a unique financial hack that will help you save money, and feel less stressed financially throughout the entire year. It’s called a Revolving Savings Account.  

revolving savings account

What is a Revolving Savings Account?

You probably already have a monthly budget that you follow. Or you may just have a general idea of how much money you need so that you can cover your regularly recurring monthly expenses. You know the bills that are due each and every month? Like your rent or mortgage, cell phone bill, car insurance, utilities, etc.  

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But what about those bills and expenses that only come around once or twice a year? These are not “emergency bills” because they’re not a surprise, you know they always happen, but you may not be planning effectively for them.These are bills like your vehicle tax and registration or back to school shopping. If you’re not in the habit of planning for these expenses, they can really put strain on your budget when they come due. 

This is where a revolving savings account comes in to save the day. A revolving savings account is an account that you deposit money into each month, knowing that you will be spending that money on specific items you’re planning for later in the year.  

How does it work?

The best way to set up a revolving savings is to make a list of your yearly irregular expenses and decide which ones you want to include in the revolving savings.

revolving savings account

Here is a list of ideas to help you out: 

  • Vehicle tax and registration
  • Quarterly car oil changes
  • Bi annual yard pest/weed control treatment
  • Anniversary gifts and yearly weekend vacations
  • Kids yearly summer swim lessons
  • Birthday gifts
  • Christmas gifts
  • Escrow shortages 
  • Yearly camping trips
  • Back to school shopping

Now that you have your list of irregular expenses, decide how much each one normally costs. For example, if you’re only going to be saving for your vehicle registration, Christmas gifts, and back to school shopping, then add up how much money you typically spend on each item. 

Lets say your vehicle tax is always $250, your normally spend $1,000 on Christmas, and your back to school shopping usually cost an extra $300 dollars. So your total would be: $1,550. Now take that total and divide it by 12 months.

$1,550 divided by 12 is about $130 a month.

So you would deposit $130 each month into your Revolving Savings Account. Then when you need the money, it’s there waiting for you. You’ll no longer have to put these expenses on a credit card, or stress about how you’re going to pay for them. This worksheet from Utah State University may help you get started.

What if I can’t afford it? 

I thought I couldn’t afford to do a Revolving Savings Account either. The total monthly amount I had to save was a sticker shock.

But then a good friend helped me to realize that I was going to be spending this money anyways. Unlike a vacation, the items that I chose were non-negotiable. I was going to have to pay for my vehicle registration, and I wasn’t going to skip out on my kid’s birthday gifts. So the money had to come from somewhere, and it was better to know exactly how I was planning to pay for these things then to hope for a miracle. (Or charge it on my credit card.)

The Easiest Way to Set Up a Revolving Savings

So I decided to use my tax return one year to jump start my Revolving Savings Account. I was able to deposit a lump sum into the account, and then my monthly deposits didn’t need to be as large.

I also called my credit union and set up an automatic payroll deposit into the account. Then every time I got paid, a specific amount of money went directly into my Revolving Savings. I didn’t need to think about it or have the temptation to skip a month. Which made it even easy to stick with.  

Also, please remember if you already have an emergency savings account you’ll want to keep contributing to that as well. Then when a real actual emergency happens, you won’t be tempted to pull money from your Revolving Savings.

Revolving Savings Account

I hope this financial life hack will help you feel more in control of your finances and give you some peace of mind.

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