In our net worth, I have a series of earmarks, and I’m wondering what your thoughts are on getting rid of them.
Here’s a brief rundown of how my ‘system’ works when it comes to earmarks.
We keep money between an ING Direct savings account and an Ally Demand Notes money market account to cover the following:
- Emergency Fund
- Future New Car Fund
- Vacation Fund
- Electronics / Furniture Fund
- New Roof Fund
- Car Maintenance and Repair Fund
- Escrow Fund (we pay our own property insurance and taxes)
There’s a couple of other funds but they’re too complicated to explain, but I think you can get the picture from the categories above.
What I do is basically ‘write down’ a portion of each of the funds above, since, in theory, they’re allocated already for spending. The emergency fund is the only exception that has no earmarks against it.
The rationale I used when I set this up is that, because it’s a matter of when the money get spent, not if, writing off part of the amounts would reduce the drastic swings in calculating our net worth.
If I have $1,000 in our car repair fund, I might have a 75% write-down on that. That means that when I calculate our net worth, only $250 of that amount shows up in our net worth. It also means that if I had a repair come due that cost me $1,000, we would only see a drop in net worth of $250 for that month.
So, it does exactly what it’s supposed to do. But, after a few years of running this way, and adding various categories over time, I’m just not sure it’s worth the trouble anymore. I guess the better question is whether it’s really such a bad thing to have drops in net worth when big expenses come due?
It would certainly make things easier to just drop this. This would result in a one-time spike in our net worth, but would then be a lot easier to keep track of on a month to month basis.
What are your thoughts on earmarking funds?