Wednesday, June 24, 1998

Dollar-Cost-Average Budgeting
By Bob Bloomfield ([email protected])

One of the elements of personal finance I use to help discipline my saving and budgeting I will call "Dollar-Cost-Average Budgeting." It is very similar to Dollar-Cost Averaging into your savings (DRiPs or 401(k) plans, for example). The method is to save a small but consistent amount over a long period of time.

It's also akin to a Christmas club payroll deduction at work. You ask your employer to deduct a small amount from each paycheck during the year. And at the end of the year, you will have accumulated a nice sum to purchase Christmas presents without relying on credit cards or other debt.

I also use this method when I budget for large purchases I will make in several months. For example, my semi-annual car insurance bill is $300. Every month, I set aside $50 toward that amount. So when the car insurance bill arrives in the mail, the full $300 is at hand; it's a painless task to pay it.

Other useful dollar-cost-average budget items include my annual $2,000 IRA contribution. For example, each month in 1998, I set aside $167 dollars. Then in January 1999, I deposit the full $2,000 into my IRA account. That way, my investment dollars start working for me right away. It's simple, which is great, but even better, it really does work.

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