Final answer:
To prepare for a planned large expense like a house repair, creating a sinking fund or a dedicated savings account is effective; it allows you to save specifically for the cost over time, while also maintaining good financial habits and protecting your emergency fund.
Step-by-step explanation:
For a planned large expense, such as a house repair, it is advisable to use a dedicated savings account or a sinking fund. These savings methods enable you to set aside money over time specifically for this upcoming cost. Anticipating a large expense requires a proactive approach to financial planning. A recommended method is creating a sinking fund, which is a savings account that is dedicated to accumulating money for a specific upcoming expense.
For example, if you're aware of a house repair that will occur in the future, you would calculate the total expected cost of the repair and divide it by the number of months until the repair is needed. This gives you the monthly savings target. By adhering to a structured household budget, you can identify areas where you can cut back on expenses to allocate more money toward the sinking fund. This might include reducing discretionary spending, finding cost-saving measures in your daily expenses, or increasing your income through additional work.