I recommend this idea highly, and after a while you really do get used to paying into it and dividing it up….

It didn’t take us long to figure out that we could use the same account for other annual or periodic expenses. We now also use it for auto insurance, tuitions, certain annual charity contributions, and other purposes. Basically, we ended up with a “freedom account” without really thinking of it that way.

It does make a lot of sense, and is easy to maintain: just figure out how much you’re likely to need to spend on these periodic expenses in a year, divide by 12, round up a bit for safety, and then get that automatically skimmed off every time you get paid. (If you get paid biweekly, divide by 26 instead of 12.) We don’t have to worry when the big insurance payment comes due: we’ve already got it socked away (plus a little extra).

I failed to mention, I have to give Mary Hunt extra props, as she has come a long way with her advice. Her children I believe are now grown, and she’s made a living with her books, advice, and speaking engagements. Lots of experience on her side. She survived to tell the tale.

Trent, I believe Mary has referenced your blog before, in regard to the home made laundry detergent recipes.

So if I haven’t used the card, I can put $200 in the “freedom fund” every other week, and if I’ve made a card purchase, slightly less goes into the fund that pay period. The credit card balance goes down by $200/month no matter what, even if the freedom fund suffers.

It’s separate from my emergency fund, though I’ve definitely used it instead of dipping into the emergency fund for exactly things like a higher-than-normal cell phone bill, vacation money, i.e non-emergency, non-predictable expenses.

I don’t know if you read it, but Trent’s article from a few days ago, “Opportunity”, is a great example of how having nuts and bolts stuff down in your financial life (the basics–what a large portion of PF writers spend most of their time focusing on– )can open up doors of possibility that are closed to you if you don’t have your stuff together.

Basically, he was writing about a couple of times earlier in his life when not having significant cash on hand/saved up prevented him from capitalizing on a couple really sweet business opportunities. The article pointed out how much it can benefit you to get to the place where you have more financial flexibility and some savings built up–not just to take care of emergencies, but to make certain kinds of opportunities come within your reach.

It’s a great book for someone who’s just putting the nuts and bolts together of sound personal budget management and living within their means/towards their dreams, it’s a fun read, and on that level I think it’s terrific.

I am wondering exactly what you mean by “taking big financial risks”. If what you mean is working for yourself and creating your own business, I would agree that most PF writers do not address your needs, desires, and do not address the mentality of people who for whatever reason are not “wage earners.”

“Frugality” type programs give advice in baseline aspects of balancing income and expenses, often with a heavy focus on the expense side. While this is an essential part of financial and personal success, it leaves out a whole bunch of behaviors and thought patterns and goals that I think you are referring to–those behind entrepreneurship, active investing (investing in businesses you have partial or complete control of, not stocks or consumer investing products)–and generally speaking, business creation as opposed to working for salary or wages.

Budgeting and income-balancing programs/websites/books in general do not emphasize putting big wads of cash down and making something new with it. They almost ignore that, instead focusing on limiting or redistributing consumption expenses.

It’s probably a good thing for them, because the numbers of people who are going to own their own businesses are much smaller than those who will work as employees, and the employees represent a larger market available to personal finance authors.

Also, the “ownership” mentality is something most people don’t have a lot exposure to–most people (statistically) are employees, not business owners, and business owners just have a different perspective. It’s a perspective that is very very far from anyone who is just trying to keep their budget in line, because psychologically most people won’t let themselves go “out on a limb” unless they’ve got a fair amount of cash behind them. And they may not have an example in their own life of someone who is following that kind of path. And they don’t think about topics like new business ideas, how to get financing, getting other investors involved in a proposition, etc, because the fact is that most is not all of the people around them don’t think about these things. I think better than books or websites is just talking to people–getting to know some people who are in business and have taken risks and succeeded and seeing if you can learn from them. I mean just having conversations about business, not necessarily looking “for advice”. And just in general keeping your eyes open for opportunities if that’s what you are geared to.

Also, I did start a “freedom” account system a couple of years ago. I have 6 categories: car, house repairs, insurance, taxes, clothing, and Gifts (really Christmas). It took a little while to get it funded and figure out a way to track it (I have it in one savings account and am thinking about splitting it into several ING subaccounts to make life simpler.) I have to say it works great for the taxes and insurance, but the BEST part has been the car.

Before, car repairs would always knock us for a loop. But now that I have “budgeted” for them by putting money aside each month, I’ve been able to handle everything the machines have thrown at us with just a few winces at the price. I put away a fair amount, and figure if there is any excess, it can always be used toward purchase of the next car when the time comes. Highly recommend it!

Rich Dad Poor Dad