Do 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.
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
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.
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.
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.
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.
I have to admit, years ago, there was a time in my life when I exhibited all 10 of these signs of financial struggles. It started right around the time my husband and I got married in 2006. We were spending, spending, spending – and we had no idea how bad of a situation we were getting ourselves into. Honestly, I don’t even know what we were spending on. We had multiple credit cards open and we were racking up the debt faster than we could pay it off!
In the beginning, we were only experiencing 1, or 2, or 3 of these signs, but before we knew it, we were experiencing almost every single one.
Does this sound familiar?
If this sounds like you, I want you to know, you are not alone and even reading this shows me that you are heading in the right direction. In order to resolve and take care of an issue, you need to acknowledge it. My hope is that you’ll see these signs and if you recognize them in yourself, you’ll make the decision to take action before things get too far along.
Here are 10 signs financial struggles might be creeping up on you:
You Don’t Know How Much You Owe
Credit cards, loans galore – it can be so overwhelming. Do you feel like there’s just so much, you decide to push it to the back of your mind and ignore it or pretend it’s not there? If that’s you, the financial struggle is real.
You’re Arguing with Your Partner About Money
When arguments continually center around money, finances, and spending – your financial struggles are a real problem.This arguing can start out small and escalate, especially if one person is a saver and the other is a spender. When both spouses aren’t on the same page about spending, it results in tension and, over time, this tension puts a strain on your relationship.
You Need to Use Credit Cards to Cover Expenses
You know you don’t have money in the bank but you’ve got a handy-dandy credit card in your pocket. So you buy now and pay for it later. This leads to rapidly racking up credit card debt. It’s time to really look at your finances if you always find yourself relying on your credit cards.
You’re Only Able to Make Minimum Payments
If you are only able to make the minimum monthly payments on your loans and bills, it is a sign that your finances might not be where you need them to be. When you have multiple credit cards and loans, those minimum payments add up and the balance never appears to get smaller due to interest.
You Frequently Make Late Payments and Overdraft Your Account
When you miss a payment or overdraft your account, you’ll get hit with loads of extra fees. No one wants additional fees – they really start to add up. And, mounting fees and charges will just add to your debt. If this happens to you frequently, it is definitely an underlying issue you’ll want to look at.
You Don’t Have a Savings or Emergency Fund
Emergencies happen, things break down, so it’s important to have a plan and some funds set aside for those unforeseen events and accidents. Without a savings or emergency fund, you’ll end up taking out more loans and using your credit cards. It can take a while to get to a place where you can set up a savings fund but the sooner you’re able to do this, the better off you’ll be.
You Find Yourself Borrowing from Family and Friends
When things are bad, you might feel like you have no other option than to rely on family and friends. Fortunately, this wasn’t a huge issue for us. If you rely on friends and family to bail you out, it is time to start establishing new financial habits to move towards financial security.
You’ve Requested an Increase on Credit Limits
Credit cards have limits to help us from not racking up more debt than we can payback. If you’ve hit that limit and you’re requesting more credit, that’s not a good sign. This goes hand-in-hand with opening up multiple credit cards. Or, have you found yourself getting creative with moving balances and debts from one place to another? If this is you, it might be time to take a good hard look at these habits.
You Have No Retirement Savings
This isn’t necessarily a sign you’re struggling, but it is something you want to start thinking about. I’m sure you don’t want to be working until you’re 80 or 90 – no one does! But if you are getting closer and closer to retirement age with no financial plan, you’re going to find yourself experiencing financial struggles. The later you start saving for retirement, the more difficult it will be to grow your funds into something you can live off of.
You’re Living Paycheck to Paycheck
If this is you – you get paid and you’re already relying on your next paycheck. If you’re in the vicious cycle of using your paycheck before it even hits your bank account, that is a really strong sign that you are struggling financially.
Take a step back, lay everything out, take a look at your situation, and be honest with yourself. Acknowledge and be aware of what is happening in your life and your finances. It is going to be okay. Now, let’s take some steps to move your family forward to a better financial space.
I’m holding a FREE live online Family Budget Planning Workshop at the end of August and I’d love to have you join me. Click here for all of the details so you can begin to manage and control your family without the overwhelm.
I recently heard an interesting story from a business peer whose daughter started college in the fall. This mom was telling me that she received a call from her daughter thanking her for teaching her how to cook, clean and do her own laundry. She was pleasantly surprised that her daughter had thanked her for teaching these skills and she asked her daughter what had prompted the call. Her daughter relayed to her that she had been horrified when she discovered that her roommate didn’t know how to do any of those things.
If your kids were to go away to college today, what kind of phone call do you think you’d receive?
What skill sets do you want them to leave home with that will give you the peace of mind of knowing they can take care of themselves? With the right preparation, we can get our kids on the right track, so that they can each acquire these important life skills.
You may be thinking, what ‘life skills’ should I be teaching my kids?
We’ve put together a four part series that will highlight different types of life skills all of our kids desperately need to learn before heading off into the world. Ultimately, as a parent, you get to choose which life skills are important to you and your family, but this series will give you a thorough overview of the areas I focus my time on with my kids.
First Up in our Life Skills Series – Let’s Chat Personal Finance Management.
Personal finance is one of the most essential life skills, that we don’t tend to teach the next generation. I guess we just assume they will just figure it out like we did.
However, I think many of us (I’m raising my hand right now, too) took a bit longer to figure it out than necessary. I don’t know about you, but if I can help my kids now to avoid the mistakes I made later on down the line – I’m all for it.
Because of that, I’ve already started on many of these lessons with my own kids.
HOW TO BUDGET
The ability to budget and be financially responsible is absolutely vital to your life skillset. It’s a skill we can learn from a very young age and one we should build upon throughout our lives. Setting financial goals, taking care of your money and calculating expenses are an important part of budgeting.
HOW TO AVOID/GET OUT OF DEBT
Learning to live within your means is definitely a learned skill. Learning to slay your debt is about keeping your spending in check and managing a plan to pay off your debt quickly and efficiently. We refer to it as a war, slaying, tackling and fighting because it’s truly challenging. But, the amazing thing is, with a little practice, avoiding debt is a war that we can teach our kids to win.
HOW TO MAKE A MAJOR PURCHASE
Maybe your kids are about to buy their first car—or maybe just their first new jacket with their allowance money. Whatever it is, they should understand how to compare prices, how to do research via Consumer Reports, and how to make a smart, well informed, purchase.
BALANCING YOUR BANK ACCOUNT
How many of us just use our debit card without writing things down? How many of us pay bills online or have them set up to automatically be debited from our accounts and then sort of forget until they show up on our bank statement?
Being able to record your expenses is a skill that keeps us in touch with your finances. It’s important that our children understand what it truly means to use their debit cards and actually physically subtract the money from their bank accounts. It keeps them immediately accountable for what they’re spending. Have them try committing to write things down for a month and see if you notice a difference in their spending patterns.
HOW TO USE COUPONS
Learning how to use coupons can actually be fun for kids! My children love it and it’s really easy to get started. With a little organization and some practice, you’ll become a couponing queen (and you’ll rarely catch yourself or your kids paying full price for ANYTHING).
Once they have saved a lot of money or have their debt paid off, understanding how to invest their money wisely is also a huge learning experience. Even people who have money to spare have trouble with investments and making that money grow.
Really, there are very few ways to “get rich quick” aside from winning the lottery, and most investing and money management attempts have to be carefully vetted and researched. Show your kids how to research various areas of investment such as the stock market, real estate, or startups before they decide to let go of their hard-earned money.
Bargaining, bartering, negotiating—it’s a learned life skill many of us shy away from. Learning how to trade, make an offer, and be comfortable with asking for a better deal can save you money. It can also be a valuable skill when you’re faced with a tricky money situation (like asking for a raise) where negotiating is essential and expected.
Teach your kids not to shy away from making a bargain. Challenge them to practice until they feel comfortable. That might mean saying, “Is that the best you can offer?” over their next big purchase or you could have them set up a swap with a friend to practice negotiating. This will help them learn to stop cringing whenever a negotiating opportunity presents itself.
Our kids need life skills now more than ever. Period. End of story. As their parents, it is our job to teach them. But, when we don’t know where to start – it can be overwhelming. My advice, start with personal finance management. Come back next week for part two where we’ll be chatting about cooking and cleaning.
In the meantime, you can grab our completely FREE Family Chore and Money System Action Guide, here. You can also hop over to Facebook and watch me walk through how to use it, here. If you’d like even more support, 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.⠀