Why does it seem unnecessary to fully save for irregular periodic expenses?
"I think we'd need to look at actual numbers to see where you're running into trouble. I'm also a little confused by your use of the term ""unexpected expenses"". You seem to be using that to describe expenses that are quite regular, that occur every X months, and so are totally expected. But assuming this is just some clumsy wording ... Here's the thing: Start out by taking the amount of each expense, divided by the number of months between occurrences. This is the monthly cost of each expense. Add all these up. This is the amount that you should be setting aside every month for these expenses, once you get a ""base amount"" set up. So to take a simple example: Say you have to pay property taxes of $1200 twice a year. So that's $1200 every 6 months = $200 per month. Also say you have to pay a water bill once every 3 months that's typically $90. So $90 divided by 3 = $30. Assuming that was it, in the long term you'd need to put aside $230 per month to stay even. I say ""in the long term"" because when you're just starting, you need to put aside an amount sufficient that your balance won't fall below zero. The easiest way to do this is to just set up a chart where you start from zero and add (in this example) $230 each month, and then subtract the amount of the bills when they will hit. Do this for some reasonable time in the future, say one year. Find the biggest negative balance. If you can add this amount to get started, you'll be safe. If not, add this amount divided by the number of months from now until it occurs and make that a temporary addition to your deposits. Check if you now are safely always positive. If not, repeat the process for the next biggest negative. For example, let's say the property tax bills are April and October and the water bills are February, May, August, and November. Then your chart would look like this: The biggest negative is -370 in April. So you have to add $370 in the first 4 months, or $92.50 per month. Let's say $93. That would give: Now you stay at least barely above water for the whole year. You could extend the chart our further, but odds are the exact numbers will change next year and you'll have to recalculate anyway. The more irregular the expenses, the more you  will build up just before the big expense hits. But that's the whole point of saving for these, right? If a $1200 bill is coming next week and you don't have close to $1200 saved up in the account, where is the money coming from? If you have enough spare cash that you can just take the $1200 out of what you would have spent on lunch tomorrow, then you don't need this sort of account." Another way of explaining the puzzling balance: Right after a particular bill is paid, you have $0 saved to pay that bill the next time.  Just before the bill is next due, you wisely have the whole amount saved;  that's the purpose of the whole process.  So, for that bill, on average over time, you'll have one-half that upcoming bill in the account. But the same argument holds for every one of the upcoming bills.  So, for a large number of bills, with varying sizes and times between occurrence, the average amount in the account will be approximately one-half of the total amount of all the bills that you're saving for. "If you just had one expense once a year of $1200, you would put in $100 a month. The average balance is going to be $600 in that case - the 0 and $1200 months average to $600, as do the $100 and $1100, the $200 and $1000, and so on. If you had one expense twice a year of $600 and put in $100 per month it will average to $300. You have a mix of 3/6/12 months - does 8 months seem reasonable as an ""average"" frequency? If so, there should be about a 4 month slush all the time. Now instead of one expense averaged over 12 months, imagine 12 accounts, each needing $100 a month. If you started at zero, you would put in $1200 the first month and immediately spend it. One account would go from +100 (its share of what you put in) to -1100 while the rest are all at +100. Overall your balance would be zero. Then the next month you would again deposit 1200 and spend 1200, bringing one account to -1000, one to -1100, and the rest to +200. You average to zero actually on deposit because some of the ""accounts"" have negative balances and some have positive. But aren't doing that. You ""caught up"" the months you were  behind. So it would be like putting in $1200 for the first account, $1100 for the second, $1000 for the third and so on - a total of $7800. Then you take out $1200 and go down to 6600. The next month you put in $1200 and take out $1200 but you will always have that $6600 amount in there. All of the accounts will have positive balances - averaging $550 in this example." "It totally depends on when your expenses hit and whether you might have a larger stock than necessary. If you run your projections against the monthly save and the intervals of when you'll need the money, you might be able to extract some stock from the account.  I recommend making this a bit simpler. I operate this with an ""annuals"" account which is a complete aggregate of expenses that I know I have several times per year (or once every two years), but are not monthly or part of a weekly non-fixed expense budget cap. Instead of tracking each expense individually and saving for it, create a spreadsheet that lists out all of these expenses, sum them, and then divide by 12. When I first opened this account, I added a one-time deposit to ""catchup"" to make sure I would never need to pull money from another source for these expenses. As new expenses come into existence that I should plan for annually, I simply add them to this list and adjust the monthly auto-deposit to the account. This also adjusts my single number weekly budget.  To make it easy, whenever I see an expense on my annuals list on my amex or debit, I simply initiate a withdrawal from the annuals savings and it will balance out my weekly or monthly budget expenses.  The goal of my annuals account is to simply avoid anti-windfalls that are known quantities (insurance, annual eye exam, sprinkler flush, amazon prime, etc) that would throw a wrench in weekly/monthly budget and expense planning. The more variables you can remove from your weekly/monthly, the more regular it becomes and the more likely you will be able to stick to a budget."
"As an aside, why does it seem to be difficult to get a conclusive answer to this question? I'm going to start by trying to answer this question and I think the answer here will help answer the other questions.  Here is a incomplete list of the challenges involved: So my question is, is there any evidence that value investing actually beats the market? Yes there is a lot of evidence that it works and there is a lot of evidence that it does not.  timday's has a great link on this.  Some rules/methods work over some periods some work during others.  The most famous evidence for value investing probably comes from Fama and French who were very careful and clever in solving many of the above problems and had a large persistent data set, but their idea is very different from Damodaran's, for instance, and hard to implement though getting easier. Is the whole field a waste of time? Because of the above problems this is a hard question.  Some people like Warren Buffet have clearly made a lot of money doing this.  Though it is worth remembering a good amount of the money these famous investors make is off of fees for investing other peoples' money.  If you understand fundamental analysis well you can get a job making a lot of money doing it for a company investing other peoples' money.  The markets are very random that it is very hard for people to tell if you are good at it and since markets generally go up it is easy to claim you are making money for people, but clearly banks and hedge funds see significant value in good analysts so it is likely not entirely random. Especially if you are a good writer you can make a more money here than most other jobs. Is it worth it for the average investor saving for retirement?  Very, very hard to say.  Your time might be better spent on your day job if you have one. Remember because of the fees and added risk involved over say index investing more ""Trading is Hazardous to Your Wealth.""" "With 40% of your take-home available, you have a golden opportunity here. Actually two, and the second builds out easily from the first.  Golden Opportunity # 1: Layoff Immunity Ok, not really immunity. Most people don't think of themselves getting laid off, and don't prepare. Of course it may not happen to you, but it can. It's happened to me twice. The layoff itself is an emotional burden (getting rejected is hard), but then you're suddenly faced with a gut-wrenching, ""how am I gonna pay the rent????"" If you have no savings, it's terrifying. Put yourself in that spot. Imagine that tomorrow, you're out of a job. For how many months could you pay your expenses with the money you have? Three months? One? Not even that?  How about shooting for 12 months? It's really, really comforting to be able to say: ""I don't have to worry about it for a year"". 12 months saved up gives you emotional and financial stability, and it gives you options -- you don't have to take the first job that comes along.  Now, saving 12 months of expenses is huge. But, you're in the wonderful spot where you can save 40% of your income. It would only take 2.5 years to save up a year's worth of income! But, actually, it's better than that. Because your 12-month Layoff Immunity fund doesn't have to include the amount for retirement, or taxes, or that 40% we're talking about. Your expenses are less than 60% of take-home -- you'd only need 12 months of that. So, you could have a fully funded 12-Month Layoff Immunity Fund only in a year and a half!  Golden Opportunity #2: Freedom Fund Do you like your Job? Would you still do it, if you didn't need the money? If so, great. But if not, why not get yourself into a position where you don't need it? That is, build up enough money from saving and investing to where you can pay your expenses - forever - from your investments. The number to keep in mind is 25. Figure out your annual expenses, and multiply it by 25. That's the amount you'd need to never need a job again. (That works out to a 4% withdrawal rate, adjusting for inflation every year, with a low risk of running out of money. It's a rule of thumb, but smart people doing a lot of math worked it out.) Here you keep saving and investing that 40% in solid mutual funds in a regular, taxable account. Between your savings and the compounding returns off the investments, you could easily have a fully funded ""Freedom Fund"" by the time you're 50. In fact, by 45 isn't unreasonable.  It could be even better. If you live in that high-rent area because of the job, and wouldn't mind living were the rents are lower once you quit, your target amount would be lower. Between that, working dedicatedly toward this goal, and maybe a little luck, you might even be able to do this by age 40.  Final Thoughts There are other things you could put that money toward, like a house, of course. The key take-away here, is to save it, and invest it.  You're in a unique position of being able to do that with 40% of your income. That's fabulous! But don't think it's the norm. Most people can't save that much, and, once you lose the ability to save that much, it's very difficult to get it back. Expenses creep in, lifestyle ""wants"" become ""needs"", and so on. If you get into the habit of spending it, it's very difficult to shrink your lifestyle back down - down to what right now you're perfectly comfortable with. So, spend some time figuring out what you want out of life -- and in the mean time, sock that 40% away." "(Real) interest rates are so low because governments want people to use their money to improve the economy by spending or investing rather than saving. Their idea is that by consuming or investing you will help to create jobs that will employ people who will spend or invest their pay, and so on. If you want to keep this money for the future you don't want to spend it and interest rates make saving unrewarding therefore you ought to invest. That was the why, now the how. Inflation protected securities, mentioned in another answer, are the least risk way to do this. These are government guaranteed and very unlikely to default. On the other hand deflation will cause bigger problems for you and the returns will be pitiful compared with historical interest rates. So what else can be done? Investing in companies is one way of improving returns but risk starts to increase so you need to decide what risk profile is right for you.  Investing in companies does not mean having to put money into the stock market either directly or indirectly (through funds) although index tracker funds have good returns and low risk. The corporate bond market is lower risk for a lesser reward than the stock market but with better returns than current interest rates. Investment grade bonds are very low risk, especially in the current economic climate and there are exchange traded funds (ETFs) to diversify more risk away. Since you don't mention willingness to take risk or the kind of amounts that you have to save I've tried to give some low risk options beyond ""buy something inflation linked"" but you need to take care to understand the risks  of any product you buy or use, be they a bank account, TIPS, bond investments or whatever. Avoid anything that you don't fully understand." If you have the money to pay cash for the car. Then 0 months will save you the most money. There are of course several caveats. The money for the car has to be in a relatively liquid form. Selling stocks which would trigger taxes may make the pay cash option non-optimal. Paying cash for the car shouldn't leave you car rich but cash poor. Taking all your savings to pay cash would not be a good idea. Note: paying cash doesn't involve taking a wheelbarrow full of bills to the dealer; You can use a a check. If cash is not an option then the longest time period balanced by the rates available is best. If the bank says x percent for 12-23 months, y percent for 24-47 months, Z percent for 48 to... It may be best to take the 47 month loan, because it keeps the middle rate for a long time. You want to lock in the lowest rate you can, for the longest period they allow. The longer period keeps the required minimum monthly payment as low as possible. The lower rate saves you on interest. Remember you generally can pay the loan off sooner by making extra or larger payments. Leasing. Never lease unless you are writing off the monthly lease payment as a business expense. If the choice is monthly lease payments or depreciation for tax purposes the lease can make the most sense. If business taxes aren't involved then leasing only means that you have a complex deal where you finance the most expensive part of the ownership period, you have to watch the mileage for several years, and you may have to pay a large amount at the end of the period for damages and excess miles. Plus many times you don't end up with the car at the end of the lease.  In the United States one way to get a good deal if you have to get a loan: take the rebate from the dealer; and the loan from a bank/credit Union. The interest rate at banking institution is a better range of rates and length. Plus you get the dealer cash. Many times the dealer will only give you the 0% interest rate if you pay in 12 months and skip the rebate; where the interest paid to the bank will be less than the rebate. I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year.  The general rule of thumb is that you should have six months income as an emergency fund.  So your savings should be around $5k.  Build that first.   Some argue that the standard should be six months of living expenses rather than income.  Personally, I think that this example is exactly why it is income rather than living expenses.  Six months of living expenses in this case would only be $1250, which won't pay for much.  And note that living expenses can only be calculated after the fact.  If your estimate of $50 a week is overly optimistic, you might not notice for months (until some large living expense pops up).   Another problem with using living expenses as the measure is that if you hold down your living expenses to maximize your savings, this helps both measures.  Then you hit your savings target, and your living expenses increase.  So you need more savings.  By contrast, if your income increases but your living expenses do not, you still need more savings but you can also save more money.  Doesn't really change the basic analysis though.  Either way you have an emergency savings target that you should hit before starting your retirement savings.   If you save $150 per week, then you should have around $4k in savings at the beginning of next year.  That's still low for an emergency fund by the income standard.  So you probably shouldn't invest next year.  With a living expenses standard, you could have $6250 in savings by April 15th (deadline for an IRA contribution that appears in the previous tax year).  That's $5000 more than the $1250 emergency fund, so you could afford an IRA (probably a Roth) that year.   If you save $7500 next year and start with $4k in savings (under the income standard for emergency savings), that would leave you with $11,500.  Take $5500 of that and invest in an IRA, probably a Roth.  After that, you could make a $100 deposit per week for the next year.  Or just wait until the end.   If you invested in an IRA the previous year because you decided use the living expenses standard, you would only have $6500 at the end of the year.  If you wait until you have $6750, you could max out your IRA contribution.  At that point, your excess income for each year would be larger than the maximum IRA contribution, so you could max it out until your circumstances change.   If you don't actually save $3k this year and $7500 next year, don't sweat it.  A college education is enough of an investment at your age.  Do that first, then emergency savings, then retirement.   That will flip around once you get a better paying, long term job.  Then you should include retirement savings as an expected cost.  So you'd pay the minimum required for your education loans and other required living expenses, then dedicate an amount for retirement savings, then build your emergency savings, then pay off your education loans (above the minimum payment).  This is where it can pay to use the more aggressive living expenses standard, as that allows you to pay off your education loans faster.   I would invest retirement savings in a nice, diversified index fund (or two since maintaining the correct stock/bond mix of 70%-75% stocks is less risky than investing in just bonds much less just stocks).  Investing in individual stocks is something you should do with excess money that you can afford to lose.  Secure your retirement first.  Then stock investments are gravy if they pan out.  If they don't, you're still all right.  But if they do, you can make bigger decisions, e.g. buying a house.   Realize that buying individual stocks is about more than just buying an app.  You have to both check the fundamentals (which the app can help you do) and find other reasons to buy a stock.  If you rely on an app, then you're essentially joining everyone else using that app.  You'll make the same profit as everyone else, which won't be much because you all share the profit opportunities with the app's system.  If you want to use someone else's system, stick with mutual funds.  The app system is actually more dangerous in the long term.   Early in the app's life cycle, its system can produce positive returns because a small number of people are sharing the benefits of that system.  As more people adopt it though, the total possible returns stay the same.  At some point, users saturate the app.  All the possible returns are realized.  Then users are competing with each other for returns.  The per user returns will shrink as usage grows.   If you have your own system, then you are competing with fewer people for the returns from it.  Share the fundamental analysis, but pick your stocks based on other criteria.  Fundamental analysis will tell you if a stock is overvalued.  The other criteria will tell you which undervalued stock to buy. Good question, very well asked! The key here is that you need to find a solution that works for you two without an overt amount of effort.  So in a sense it is somewhat behavior driven, but it is also technology driven.   My wife and I use spreadsheets for both checking account management and budgeting.  A key time saver is that we have a template sheet that gets copied and pasted, then modified for the current month.  Typically 90% of the stuff is the same and each month requires very little modification.  This is one of my problems with EveryDollar.  I have to enter everything each and every month. We also have separate checking accounts and responsibility for different areas of the family expenses.  Doing this risks that we act as roommates, but we both clearly understand the money in one persons account equally belongs to the other and during hard times had to make up for shortfalls on the part of the other. Also we use cash for groceries, eating out, and other day to day expenses.  So we don't have a great need to track expenses or enter transactions. That is what works for us, and it takes us very little time to manage our money.  The budget meeting normally lasts less than a half hour and that includes goal tracking. We kind of live by the 80/20 principle.  We don't see a value in tracking where every dime went.  We see more value in setting and meeting larger financial goals like contributing X amount to retirement and things of that nature.  If we overspent a bit at Walgreens who cares provided the larger goals are meant and we do not incur debt. "According to your numbers, you just stated that you spend approximately $1500 in discretionary expenditures per month, yet are unable to save. I fully realize that living in a big city is usually expensive, but on your (presumably after-tax) salary, I think you can easily save a substantial portion of your income. As others have already noted, enforcing saving of a significant portion of your discretionary income is the most obvious step.  It's easy to say, but I suspect that if you are like most people who have difficulty saving, the psychological impact of quitting your previous spending habits ""cold turkey"" is likely to be very harsh, all the more so if you have an active social life.  You may find yourself becoming depressed or resentful at ""having"" to save.  You may lose motivation to work as hard because you might think that you're putting away all this money for the distant future, whereas you are young now and want to enjoy life while you can. It is in this context, then, that I looked at your other financial obligations.  Paying $1300/month to your parents is a lot.  It's over 20% of your after-tax salary.  You do not specify the reasons for doing this other than a vague sense of familial duty, but my recommendation is to see if this could be reduced somewhat.  If you can bring it down to $1000/month, that $300 would go into your savings, and you would psychologically feel a lot better about putting, say, $600 of your own discretionary income into savings as well.  Now you have, all told, about $1000/month of savings without severely curtailing your extra expenditures. But I would start with that $1500/month of luxury spending first.  And yes, you do need to view it as luxury spending.  The proper frame of mind is to compare your financial situation to someone who is truly unable to save because their entire income is spent on actual necessities:  food and shelter; their effective tax rate is 0% because they earn too little; and they usually find themselves in debt because they cannot make ends meet.  Now look back at that $1500/month.  Can you honestly say that you cannot afford to cut that spending?" Maybe minimalism is an option for you. Make your self clear what you really want You only buy what you really need and for that you spend the money. Then there is no point of saving money, i.e. I for example like to invite friends and cook them some fancy diner with expensive products, but the value I get from that exceeds any money I spend. On the other hand most present are the opposite, they have less value to recipient than what they originally have costs.