Tuesday, April 13, 2010

The “Hill and Valley” Fund

A guest post from The Christian Dollar...

I recently heard Dave Ramsey speak of a new type of budgeting category – one that I’d never heard of before. It’s called the “Hill and Valley” Fund. Dave described it as not quite an emergency fund, but a fund that allows some flexibility for the monthly budgeting categories.

For example, if you were to have more medical expenses this month than you expected, instead of pulling money from your hard-to-access (but not TOO hard-to-access) emergency fund, you might pull some money from the Hill and Valley Fund rather than touch your main emergency fund.

This makes sense to me. In fact, I recently discovered the need for such a fund. Prior to hearing Dave’s advice, I would just maneuver money between categories as I saw fit. I thought of having a separate “mini” emergency fund to cover these oddball expenditures, but scrapped the idea because I wasn’t sure if I was being too extreme (having multiple emergency funds seemed like a crazy idea at the time).

Courtney and I have yet to start such a fund, but I think we’ll definitely put it on our to-do list of items to discuss. $100 or so monthly seems like a reasonable amount of slack in our budget to combat those valleys. This type of fund would NOT roll over to the next month, as this excess might produce a feeling of not having to stick with our planned budget.

Emergency fund-type rules should apply to such a Hill and Valley Fund: we shouldn’t use it for lavish, discretionary expenditures. Instead, we should only pull from it in the event that we REALLY NEED more grocery money or REALLY NEED a hair cut! You get the picture.

The benefit to such a fund is that we won’t be skimping on other important categories. To be honest, sometimes we would pull from the insurance category to fund the medical category. Insurance is important too! I think the Hill and Valley fund will make for a great “slush fund” as we do our monthly budget.

What do you say? Do you think the Hill and Valley Fund is good antidote to the rigid budget?

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