For the first time since our marriage, my husband and I didn’t have to worry about paying our car insurance this month. In the past we’ve had to scrimp and scrounge to make the twice annual payments, raiding our savings and checking accounts and even charging into a credit card.
This month, however, we simply withdrew the money from an account set aside for the purpose and paid the insurance without thinking about it, worrying about it, or feeling the pinch.
This thing that brought about this change was the revolving savings account or, as they are otherwise known, freedom accounts. Each paycheck, we would have a small amount automatically withdrawn and deposited in a savings account set aside specifically for paying car insurance.
There are three basic ways of having revolving accounts. The first is to create a separate savings account at your already existing bank. This has the advantage of not requiring you to deal with a separate financial institution and is very convenient. Its disadvantages are that some financial institutions may restrict the number of savings accounts you can have, making it difficult to establish separate accounts for each of your major upcoming purchases, and that because the money is easily available you may be tempted to spend it.
Another option is to open separate accounts, possibly at an online bank, specifically for saving or large purchases. The primary advantage to this is that having the money in a separate, online account makes it more difficult to access and therefore more difficult to spend. Additionally online accounts are very well suited to automatic transfers and electronic transactions, and may make it easier for you to set up a recurring transfer into your savings account. Additionally some online banks such as ING and HSBC offer sign up bonuses which will get your freedom account started with a bang. (These account bonuses are usually available through referrals, so you’ll need to contact someone who already has accounts of these banks if you want the bonuses).
Finally, if you’re the type person who likes to use the envelope system you can simply take the designated amount of cash and stash it in an envelope assigned to a large upcoming purchase, whether it’s Christmas, car insurance, registration or repair that you know will be needed soon.
As my husband and I discovered, saving for upcoming purchases gives one a peace of mind that may be new to many of us. Freedom accounts, as it turns out, are quite aptly named.