Tweaking my savings... again!

When I overhauled my finances in May, one of the biggest changes I made was the creation of my "Freedom Account", which is what I use for periodic expenses such as scheduled car maintenance, license/passport renewals, etc. On the first payday of every month (I'm paid bi-weekly), I've been transferring a fixed amount into my ING Freedom Account, and this has built up nicely to provide for these less frequent expenses. The once-a-month scheme was set up so that each month's first paycheque would cover the Freedom Account contribution, and the second would cover the bills that are due at the end of the month.

Because of this difference between a typical month's two paycheque distributions, my money has been going to different places every payday. When I refer to my Excel budget document, it's easy enough to sort out, but it's hard to keep track of this back-and-forth in my head. Therefore, I decided this weekend that I would "even out" my budget, so that I'm making the same transfers and allocations every payday. This has two benefits:

• I can set up automatic transfers for the same amount every two weeks, dramatically reducing the amount of manual intervention that's required


• By putting myself on a bi-weekly scheme (i.e. half the monthly amount every two weeks), I take advantage of the tried-and-true "13-month year", giving me an extra month's worth of savings every year

If I extend this beyond my Freedom Account contributions to all of my monthly bills, then I stand to save over $1,500 extra each year. That's nothing to sniff at.

Another change I'm making regards my Emergency Fund goal. Teaspoon Finance has an interesting post on the merits of a "Credit Emergency Fund". Although there's some stuff in the article that I don't agree with, it got me thinking. I have a low-rate, unsecured line of credit with my bank. While I don't like the idea of having credit as my only contingency plan, I think the ideal solution for me, at least at the moment, is a combination of cash and credit. Therefore, I am reducing my longer-term Emergency Fund goal from $4,000 to $2,000. This will give me enough cash on-hand to cover most likely emergencies, and I can use the available credit on my LoC as a "worst-case" fund.

This will likely change once I've paid off my debts, but for now, I think that this "hybrid" Emergency Fund is what will work best for me.