It’s no secret that Tom and I have struggled big time when it comes to finances. During those times in life when we had less kids to worry about, more time and money we made terrible choices. What could have been the best savings years of our lives turned into the best chain restaurant years of our lives. We had all the latest in movies and clothes and we found something to spend money on every weekend. Still, at the end of the month we found ourselves penniless. (I guess it’s easy to see why.) If only time travel was possible…I would totally go back in time and kick my well dressed butt. These days, we have dug ourselves out of some serious debt, gotten our priorities strait and we have sinking funds to thank for a huge part of it.
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Sinking funds are basically a super smart way to get intentional with your savings. There were so many times I have personally felt overwhelmed because I didn’t plan enough. Like when June came and it was time to pay for our car’s tabs; or when Christmas was here and I’d pick up a seasonal job just to pay for presents…for one kid. What was I thinking? Now we have a house with 3 kids and I never have those major moments of stress. Those panic stricken, find cash fast moments are over thanks to sinking funds.
For Christmas Tom and I, for the last two years, (since we’ve started sinking funds) set aside $100 starting in August to use as our Christmas money. This gives us $500 to spend on gifts, outings, cocoa, whatever suits us. It’s even crazier to think that at one point in our lives, $500 was about what we would drop for just Destiny (our now 16 year old.) Today it’s $50 per kid and that includes stocking stuffers. Although this year we upped our amount a little bit in order to invest in some musical instruments for the kids. Get some other gift ideas here: Non Toys that Encourage Creativity, Learning and Independence.
We personally use a mini accordion file folder. Each section is designated for a different financial purpose. Right now we have Christmas, car maintenance, car tabs and Destiny (she has prescriptions, contacts and school always comes up with some new fee.) I also use this same folder to section off the money we budget for our groceries for the month.
It is so handy to have everything in one place where it is easy to keep sorted. I also like using labels to keep track of each individual fund. Labels are helpful because I can make my own and mix and match as the year changes. Don’t worry, I’m totally going to share too!
Start by creating a list of your upcoming expenses in the category column. Next, make a note of the amount you will be needing to save. After that, write down how much months you have until you are going to need this money. Then, finally, take the amount needed divided by the number of months and you will get your grand total of how much money you will need to save every month in order to save enough for each purchase.
Ideally, you will want to take each amount and divide it by the amount of paychecks you have to save. So for car tabs, you need those in 3 months and you need $150. Well, in those 3 months, you should receive 6 paychecks. So for each paycheck you will be setting aside $25.
For the larger ones, like $1,000 needed for vacation, you have a little more time. In 7 months you will have received 14 paychecks (give or take.) So you will take $1,000 divided by 14. So in 7 months, if you want to save up $1,000 for vacation, you will need to set aside $70 per paycheck.
This might be the part where you are starting to panic. Where are you supposed to get this sinking funds money? What if you don’t have enough to budget for all the things you need to be saving for?
The tough truth is, if these are all things that you need then you are going to have to find that money somehow.
Then there are the things that you don’t need. For example: the $100 birthday fund. If you are planning a party for a child, hit up Little Ceasars for some $5 pizzas, buy a cake mix from the store and bake it together. Easy and Fun Kid Baking Projects Brought Strait to Your Door. I can’t tell you the amount of joy and pride a kid is capable of feeling after helping make and decorate their own birthday cake. Now maybe you can shave that $100 back to $50…or even more.
If money seems tight, getting serious about budgeting would be a good idea. Check out my posts below, but remember there are also a ton of online options available to help you get started. See some of the options from Brightpeak Financial.
If you yourself are struggling to get out of debt and having yet heard about the Snowball Method, you can ready my post all about how we paid off $6,000 in just 6 months! If you are totally unsure of where to start I highly recommend following Dave Ramsey’s 7 Baby Steps as laid out in Financial Peace University. Another great idea is to get yourself set up with a free credit consultation to see if you are able to dispute any of your debts!
Starting any new venture can be kinda scary, but I promise this one will pay off and reduce your money panic attacks! Now Sinking Funds are something I can’t imagine our family living with out. I have so much confidence in it this method that I have actually started a super one for Destiny now that she has officially joined the workforce. I want to instill these good saving and budgeting techniques in her and our other kids so that they can avoid some of the serious financial downfalls tht we have had to face. I want you to avoid them too!