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How to Set Up Life Changing Sinking Funds

How to Set Up Life Changing Sinking Funds

pin image for how to set up sinking fundDo you know what sinking funds are? If you do, great! If you don’t I’m about to get you hooked. They are LIFE CHANGING. They will have a huge impact on your budgeting and they are super simple to get started. 

As someone who’s been debt free for over 7 years now, I can say that sinking funds have been a major habit that has helped our family stay on track and be prepared for unexpected expenses. 

But first…

What are sinking funds

A sinking fund is a fund that you set aside each month to go towards a specific expense, savings, or payment. Primarily it’s money to allocate towards a specific savings goal.  So instead of a generic savings account, these are mini saving funds with a purpose or saving with intention. There is usually a predetermined amount that is added to the sinking fund each month. Businesses can have sinking funds, but that’s not what we’re here to talk about, we’re going to be focusing on sinking funds in a family budget. 

6 Sinking Funds Every Family Should Totally Have

Christmas gifts

We all know Christmas comes every year, but many people will wait until October or November to begin thinking about how they’re going to pay for those Christmas gifts. But, what if, you started preparing for that as early as January. Each month, you put a little bit of money into that Christmas sinking fund and by the time December rolls around, you’ve got the money set aside and you no longer need to stress about how to pay for the Christmas shopping. 

Yearly bills

Some bills aren’t due every month, like auto insurance, yearly memberships, and homeowners insurance. Instead you might only need to pay them once a year. It’s easy to forget to set aside money to pay these bills. That’s why it’s perfect to set up a sinking fund for each of these. Simply divide the bill amount by 12 and add that amount to the fund each month. That way, when the bill comes up, you aren’t hit hard that month. 

Birthday gifts

These also come up every year and we rarely think to add them into our monthly budget. Why not set up a sinking fund. That way, when a birthday does come up, you have money in the fund ready to be spent on the gift!

Holiday decorations and food

Oftentimes when we go to family parties or holiday celebrations, it’s like a potluck, we all bring something. If we’re hosting, we also have to spend on the decorations, too. The expense can sometimes be a big hit and I don’t always want it to come out of my grocery budget. Instead, I set up a sinking fund to cover those expenses when they come up. 

Vacations

Create a separate sinking fund to add some money into a vacation fund. That way, when you get to the amount you need, you can pay for your vacation upfront instead of charging and then being left with bills to pay once you return. 

Home and car emergencies 

And you can’t forget those unexpected emergencies. Things break down all the time. Kids get injured and sick all the time. Those bills can be a major hit to your budget if you’re not prepared. That’s why it’s great to have a sinking fund set aside specifically for emergencies. 

Can I set it up digitally? 

Yes! It is so easy to set up your sinking funds digitally. I use an app called YNAB (You Need a Budget). It’s personal budgeting software and it’s available for Windows, Mac, and iOS. You can set up as many or as few as you’d like and you can make them as specific as you’d like. You can start with one or two, like a vacation and Christmas, and then grow from there. Setting up your sinking funds on an app is super simple.

How to set it up with cash envelopes

If digital is not your thing, you can instead use cash envelopes. Take out some cash and put it into an envelope. You can do this two different ways. The first way works like this: if you have five different sinking funds, take five envelopes, label them, and add the specific amount to that envelope each month. If you don’t want to have multiple envelopes around, you can use one envelope and track how much is in the envelope for each fund on the front of the envelope. Keep it all itemized right on the front of the envelope for convenience. This might be a bit easier than having multiple envelopes. 

 

For more tips on setting up your budget, check out our Free Family Monthly Action Plan. This Monthly Budgeting Action Plan, offers step-by-step instructions to guide you through the exact steps you need to take to set up your own family budgeting plan.

5 Groups of People Who Should Learn Budgeting

5 Groups of People Who Should Learn Budgeting

5 Groups of People Who Really Need to Learn BudgetingIt doesn’t really surprise me when I meet people who don’t budget. I’ve been at it for so long and it’s become such a major part of my life that it’s rare I go a day without thinking about budgeting. But, I wasn’t always like that.

At one point in my life, I was one-half of a newly married couple that was 100K in debt! Deciding to set and stick to a firm budget changed our lives, our relationship, and our future.

If you haven’t yet started budgeting, I’d suggest giving it a shot – especially if you are in one of the following groups!

Young Adults

Budgeting is important for young adults as they begin to navigate life on their own. They’ll be faced with new expenses like student loan payments and possibly rent for the first time. 

For many, this is the stage of life where either positive or negative money habits will begin to form. If positive habits form in early adulthood, those habits are likely to remain throughout their lives. 

Young adults may begin planning for larger expenses like a wedding, purchasing a first home or car. These are all expenses that are much easier to navigate when budgeted for.

Newly Married Couples

a couple learn budgeting together

A budget is really helpful for newly married couples because they may be merging bank accounts, spending habits, and even debt for the first time. You could have a situation where one of the partners was a budgeter prior to the coupling and the other wasn’t, where neither has ever followed a budget, or where both are dedicated budgeters. 

A newly married couple may be paying off large bills from a wedding and/or honeymoon. They may be considering purchasing a new “Forever” home. 

They are at a high risk of falling into poor spending habits as they may now have a newly combined income and the freedom and desire to eat out often, travel freely, and shop at will. 

It is especially important to learn budgeting as a newly married couple begins to consider growing their family. 

Families

It is beyond necessary for every family to have a budget. Families need to know how much money is coming in and going out each month. When a couple adds kids to the mix, the spending and needs expand. Without a clear picture of what is going where, things can get sticky really fast.

The more people in the family and depending on the ages of the kids, the possibility for unexpected expenses increase.

Additionally, kids are expensive. People don’t just say that to be funny, it’s true! Have you seen the prices for organized sports and summer camps? These are often expenses you’ll need to plan for far in advance. 

Other large expenses families need to budget for – travel. The cost of traveling exponentially increases (especially by plane) the more people you add to the family. Your weekly grocery bill will also explode with both an infant (formula and diapers) and teenagers (they eat allllll the food, seriously). 

Using budgeting strategies to prepare for these things in advance will keep your family protected in the event of a crisis. 

Single Adults

Single adults can also greatly benefit from a set budget. Oftentimes, single adults find themselves supporting themselves as well as dependent children on one income. There may also be a mortgage and car payment to consider.

For a single adult supporting a family on one income, an unexpected crisis can be completely devastating. Having a budget where you regularly add to your savings could be a true life saver. 

Kids

A kid learn budgeting

Even kids should be learning about budgeting! I know they might seem young but I promise you, it will be worth it. The earlier you begin to teach your kids the value of money, the better set up they’ll be in their adult life. 

Since my kids were 4 and 6 years old, I’ve had them use piggy banks to start teaching them the concept of earning and saving their money to pay for things.⁠ Now that they are 9 and 11, I’m working on introducing the concept of budgeting with them.⁠⠀

I’ve created a great system for us and you can check it out here. I’m sure it will evolve over time but for now, they are learning the basics of what I want them to learn and practice as adults.⁠⠀

When kids learn budgeting strategies at an early age, they will bring those habits with them into adulthood. 

 

I’m guessing you’ve gathered that it’s important for EVERYONE to learn budgeting. If you are looking for assistance in setting up your family budget, I’m here for you! Let’s chat about 1:1 coaching and I’ll help you set up a systems and routines that will work for your unique family.⁠⠀

3 Reasons to Involve the Whole Family in Budgeting

3 Reasons to Involve the Whole Family in Budgeting

In many families, all of the finances, bill paying, and budgeting fall squarely on the shoulders of one family member. I definitely understand that usually one person takes the lead on finances. But it is still so important for so many reasons that all members of the family are involved in money discussions and decisions. 

Here are 3 reasons to involve your whole family in budgeting:

Both Spouses Should be in the KnowPin image for family budgeting

In any couple, there is usually one person who takes the lead with finances and one person who is happy to hand it all over. It is important that the spouse who is ready to wash their hands of the finances doesn’t completely turn a blind eye. They need to stay in the know!

One very simple, and easy to understand reason both spouses need to know what is going on with your family budget and finances is in case of an emergency. If, god forbid, the budgeter in the family becomes incapacitated for any reason, the last thing you are going to want to spend your time doing is sifting through financial records you likely don’t even understand. 

To keep both spouses aware of what’s going on in the household financially, we suggest making time to meet and discuss finances. Have your “Money Meeting” minimally, once a month. If possible, I’d even suggest doing it once a week. As your kids get older, have them join in, too.

It is definitely okay for one spouse to manage the budget. But the other should be 100% aware of what is going on and have complete access to all financial documents and materials. 

Overall, I think both spouses should be in the know about the finances, whether one or the other physically manages it.

Teach Your Kids Valuable Skills at an Early Age

family budgeting together

Looping your kids in on your budget is a good way to get the kids learning what it takes to run a household at an early age. This is a lesson they won’t ever forget. 

I totally understand the desire to hide weakness or difficulties from our kids. Of course, we want to shelter our kids from any unnecessary stress and allow them to be kids for as long as possible. But, they should also enter adulthood with a realistic idea of how finances work.

This is why we recommend speaking openly about money, costs of different things, and bills in front of and with your kids. We also recommend including your kids in spending decisions starting at a young age, and inviting them to your money meetings as soon as they are old enough to grasp what is going on. 

Since our kids were 4 and 6 years old, we’ve had them use piggy banks to start teaching them the concept of earning and saving their money to pay for things.⁠ Now that they are 9 and 11, we’ve been working on introducing the concept of budgeting to them.⁠⠀ 

Kids that grow up in a home where money is discussed openly and honestly, become more conscious and responsible with their own spending and expenses.

One day, your future daughter or son-in-law will be thanking you for raising such a money conscious child. 

family budgeting

What’s the Big Deal, Anyway?

This might be the simplest reason of all to get the whole family involved in budgeting. Ready for it… why not? What is the big deal? As far as I can see, there is no downside to getting the whole family involved in budgeting. It brings partners closer together, eliminates placing blame, makes everyone aware, and helps develop responsibility in kids. 

Budgeting is not something to be feared or hidden. If you have family members who avoid budgeting, it’s likely a sign that they NEED to be budgeting. If you make budgeting a big scary thing, it will feel like a big scary thing. In reality, a good budget is actually pretty simple and easy to follow once you take the steps to put one in place. 

Make your budget fun and speak about it openly – your whole family will rally together and really bond over budgeting. It might sound crazy, but trust me, it’s true – just look at my family! 

 

If you are looking for assistance in setting up your family budget, I’m here for you! Let’s chat about 1:1 coaching. I’ll help you set up systems and routines that will work for your unique family.⁠ You can find out more about my family budgeting services here!