The Beginners Guide to Sinking Funds & Why YOU Need One

This year, I have vowed to be BETTER with my financial decisions.  In order to improve my behaviors and cultivate better money habits, I had to first take a look at areas where I need to focus on for improvement.  After the Mr. and I had to take $7000.00+ out of our savings to pay for a new roof and chimney repair on our rental property, I knew there had to be a better way for us to prepare for situations like this.  That 7K loss from our savings put a dent in that account and exposed a financial vulnerability that we didn’t realize existed. We were stable enough to not have to turn to credit to cover this expense, but pulling money from our savings was very scary considering that money is there to cover us in the event of job loss or a major life change.  I was an unsettling feeling and I knew that we needed to find a solution to our problem. Luckily, we came up with a plan to create a sinking fund so that we would be prepared for something like this.  It is something that will help us and I know it will help you too.

What is a Sinking Fund?

A sinking fund is an anticipatory fund that is used to save for a large future expense or the gradual repayment of a debt.  More than that, it is a proactive approach to your money. Sinking funds are very similar to the cash envelope system because it requires you to divide your income into categories and assign every dollar a job.  The main difference between the envelope system and a sinking fund is that your cash envelopes are for things you are spending on now like groceries, fuel for your car, and clothing. Your sinking fund, however, plans for future money goals.  We thought about some of the expenses that caught us off guard in the past, like emergency surgery for both of our dogs last year (that was a couple thousand dollars), or bills that are due all at once like insurance premiums. Then we came up with 10 sinking funds that we believed served our household money goals.  Check them out below.

Examples of Sinking Funds from Personal Finance Blog, She Makes Cents

Now it is time to create your sinking fund categories. Grab a pen and paper (yep, we are doing this old school), your significant other (if applicable) and a glass a Rose’ (because it makes the experience so much better) and let’s make a money plan. When you are creating your categories, remember that you don’t want to make too many funds because it will take longer to fully fund your categories.  Plus, anything over 10 is too many to keep up with, in my opinion.  

She Makes Cents Cares: I love hearing from readers, so once you have created your sinking fund categories, let me know via the She Makes Cents Facebook group, Instagram, or Twitter.

How Much Money Should Be In My Sinking Fund?

After you have created your sinking fund categories, now it is time to figure out how much money you need to have saved for each.  First, you need to figure out the goal date and total amount needed for each of your sinking funds to be fully funded.  For example, I have to pay around $450.00 every 6 months for my portion of the car insurance premium.  To determine how much money I need in this particular sinking fund, I take my next due date and I divide my premium by that number of months. It usually breaks down like this for me:

$450.00 \ 6 months = $75.00 per month 

I would much rather save $75.00 per month for six months than to have to come up with $450.00 once every six months.  Yes, it’s the same amount of money but creating a monthly car insurance fund makes the amount of the premium easier to digest. The example above is an easy breakdown because we know exactly how much money is needed and when exactly we will need the money for this fund.  Now let’s look at an example for a type of sinking fund where you don’t have a hard due date and you are not certain of the full price.   Hello, Car Repair…it sounds like we are talking about you.

We have all experienced this.  You are driving around minding your own business when a yellow warning light illuminates your dashboard.  You take your car to the mechanic and you are hit with a $1,200.00 bill. What do you do?  More than likely, you charge it to your credit card if you don’t already have some money set aside for this type of expense.  CREDIT CARD = BAD IDEA. This is a moment when your Car Repair sinking fund will work for you. Even if your Car Repair Fund only has $800.00, that means you only have to come up with the remaining $400.00, which is easier to digest than $1,200.00.  Yes, this may have been an unexpected expense but it is also one you were prepared to handle.

By creating sinking funds you take control of your money.  You know where YOUR money is so you never have to ask yourself where it went.  You give it a purpose.  If you create sinking funds to cover your future needs, you are less likely to be a threat to your future financial self and that is something that everyone can benefit from.

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Real Life Examples of Sinking Funds for the Smart Saver & Spender- from money and lifestyle blog, She Makes Cents

 

Money Saving Hacks- The Beginner's Guide to SINKING FUNDS from money blog, She Makes Cents

{2016 Money Recap} She Makes Cents Money Challenge Success!!

Hello #SMCmoneytribe!  It’s the last Friday of the year and I am so happy to hear from you all who are completing the She Makes Cents  52 Week BINGO Money Challenge  today and tomorrow. I officially finished mine today!  In the past three years I have attempted to complete this challenge, I would accomplish a short term goal and just stop.  This year, however, I have made it all the way to the end thanks to my accountability partners in the #SMCmoneytribe, as well as, my will to stay focus on my goals of zero credit card debt (mission accomplished) and snowballing my student loans (current goal in progress).2016-52-week-money-challenge

She Makes Cents Money Challenge vs. the 52 Week Money Challenge

The She Makes Cents Money Challenge is a variation of the traditional 52 Week Money Challenge.  In the traditional version, participants save a specific dollar amount based on the corresponding week.  For example on week one you save $1.00 and on week 52 you save $52.00.  Doing it this way would have you shelling out the bigger bucks in the weeks leading up to the holidays.  No Bueno.  Also, doing the traditional version only leaves you with $1378.00, which is not bad for money that you would normally spend unintentionally, but it could be better.  With the She Makes Cents BINGO Money Challenge, you have the same time period, 52 weeks, but you empowered to decide how much you save on a weekly basis.  You control your own money and have the ability to cross of boxes that correspond to your current financial situation at any given time, which is how is should always be.  Plus with the bonus boxes you can save $1900.00+.

The Breakdown of Money

This past year,  I found myself keeping track of the weekly and monthly savings and comparing the amounts during my frequent progress reports.  I saved the most money in the month of January with $286.00  and the least amount of money during the month of September with $76.00.  Below is my breakdown of the monthly savings that reflect my grand total savings for 2016… an even $1900.00!!!!2016-money-challenge-yearly-report

Join the #SMCmoneytribe

Thank you to everyone who did this challenge this past year.  It was so much fun.  We all cultivated the habit of saving and you might have made a new friend in the process like I did, hi Alysa!  Want to join the #SMCmoneytribe to get  access to a tribe of goal minded accountability partners who are invested in your success and your FREE money guide?  Click here, fill in your info, and we will do the rest.  Mark your calender’s for the next round of the challenge starting January 7th!

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{Financial Cents} 10 Simple Ways to Save Money with Techonology

Sheboygan Chrysler Money Tips

Courtesy of Sheboygan Chrysler Center

How does technology help you save?

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{Financial Cents} How Accepting A Challenge Has Saved Me $849.00

Week 38 Update

Week 3

In January, something called the 52 Week Money Challenge was spreading through the internet like wildfire. The challenge is to save the dollar amount that corresponds to the number of weeks of the year. For example on week 1 you deposit $1.00 and on week 27 you deposit $27.00 and so on. About three weeks in, I was already falling behind, partly because I tried to do it in reverse so I wouldn’t have to come out-of-pocket with higher “payments” during the holidays. I thought to myself, how can you find a way to honor the challenge in a way that will not hurt me financially? My answer- create a “bingo” style format. Seriously, this was the best thing for me and from the feedback I got, many of you as well. On weeks where my money is tight, I could choose a lower amount to add to savings and on weeks where I have a little financial cushion (like pay day, for instance) I choose a higher amount to save. At the end of the year, I will still end up saving $1378.00, just like the original version.
I find this challenge very rewarding. It makes me proud of myself because I am using it to pay down my credit card debt faster. I have even allotted a portion of the $1378.00 for holiday shopping, which can get us all into serious financial troubles if we are not properly prepared. If you are still doing the challenge, kudos to you. You have now formed a great habit and probably no longer see this as a challenge, but as a way of life. For those of you just starting out or interested in trying again, it’s never too late to get on financial track. I set a reminder on my phone so that I can remember to do it EVERY Friday. Since creating the bingo style challenge, I have applied an extra $849.00 toward lowering my debt.

Week 38
Week 38

Which Style Works Better for You?

Bingo or Classic?

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{Shopping Confession} I Spent More Because It Was On Sale

So Good…It’s a Steal

It was last Wednesday, the hottest day of the year thus far in   Atlanta. I had just completed FREE yoga in the park with some of my girlfriends from work when I decided to see if H&M still had a swimsuit I saw just two weeks ago. I walked in and didn’t really notice anything out of the ordinary. Nevertheless, before I could even get to the swimsuits, I walked pass a rack of collar shirts in the front of the store, that would be perfect for summer. I picked up three. They are on sale for $7.00 a pop… that’s a steal, I thought to myself. Then I proceeded to the middle of the store where I was flooded…no… completely overwhelmed with red sale signs. My cousin, who witnessed this too, saw me transform from She Makes Cents… back to Danielle who gets a high from shopping. Sometimes I forget we are one and the same. Thirty minutes and fourteen hangers worth of clothes later, I was on the way to the dressing room. For so long, I have done such a great job controlling my spending that I forgot just how good it felt to shop.
Thank goodness for bad fits and wrong sizes because I ended up putting back practically everything, except two pairs of flats and a white sequin blazer. I got to the checkout, opening my wallet knowing that this purchase would max out last week’s shopping/entertainment category for my envelope system, and I swiped my debit card anyway. It’s okay….I thought to myself…I saved money because I decided against all those other outfits I tried on.

The Morning After

I woke up the next morning with a major hangover…a shopping hangover, that is. You know, when you are hit with the remembrance of last night’s out of control shopping escapade. All of the warm and fuzzies have worn off and I am left trying to recall what exactly I spent my money on. Things became clearer in the light of day and I realized that left ballet flat was a size 6 (my size) and the right flat was a size 8 (not my size). Not so cute anymore, huh?   And how about that blazer?  I was forced to ask myself the same question that my cousin asked me in the midst of my excitement the night before. Where in the hell are you going to wear a white sequin blazer? That night I swore I would wear it in Vegas, but in reality, it will be over 110° when I am there. Yes, outside of the pink iridescent ballet flats that remind me of my old pointe shoes, my trip to H&M was an epic fail. They didn’t even have the bikini I walked in there for.

Can You Relate? 

Tell Me About YOUR last “Hangover”.

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{Financial Cents} How To Make A Financial Plan

Sometimes I need to remind myself that a goal without a plan is just a wish. Every morning I would pray for financial blessings but somehow found myself going through the motions, which was slowing my progress to my goal of zero debt. For me, it is about finding that balance between enjoying my lifestyle and making financially sound decisions. I have been bitten by the travel bug and I can’t wait to explore the world, I live for bottomless mimosas at brunch, and I believe shoes and the right lipstick makes the outfit. However, I also believe in building hefty savings, going into marriage without bad debt (i.e. credit card and student loans), and building generational wealth. I must agree with Dave Ramsey, financial guru, who affirms, “Personal finance is 80% behavior and only 20% head knowledge”. I am working on the behavior part. I found that even though I enjoy shopping, I’m more likely to shop when I’m bored. Recently, I started filling that boredom with QT with the Mr. walking and exploring our city. I am focusing on better decisions, which will yield better behavior. Every cause has an effect and every decision has a financial consequence; that’s why coming up with a personalized financial plan has been my saving grace. Yes, I prayed for financial blessings…I still do, but I have also added the caveat that with financial blessings come financial responsibility.

Check Out My Financial Plan Outline!

1.  Write down your debt & don’t forget to include people you owe money.    I was talking with a childhood friend who says he had zero debt.  As we got to talking it was revealed that he did not include the almost $7,000 he owed to a family member and the card he maxed out in his college days.  Out of sight, out of mind, I guess.  Once we dove deeper into our conversation, he and I started listing our debt.  At the time of this conversation, my list was simple- one credit card, student loans, and mortgage.  His, well…let’s just say that I composed a very sobering list on his behalf that included all the debt that he could remember.  Seeing your debt listed and then learning out to find out just how much you are paying in interest makes it all VERY REAL. 

2.  Emergency Fund Minimum.  Baby Step One of the Total Money Makeover is to get your emergency fund to $1,000 if you have an annual income of $20,000 or more.  “Your car will need repairs and your kids will outgrow their clothes. These are not emergencies; they are items that belong in your budget. If you don’t budget for them, they will feel like emergencies”.  It was this statement from the book that caused me to stop dead in my tracks and redefine what I considered an emergency versus saving.

3.  52 Week Money Challenge- BINGO Style.  This was actually a part of my New Year’s Resolutions every year.  The challenge is to make a weekly deposit that reflects the number of weeks of the year. For example, on week one you deposit $1.00 and on week 27 you deposit $27.00 and so on.  I took the challenge one step further by remixing it into a BINGO style which makes it easier to be successful.  The most I have ever saved in a year is a little under $2,000.00 and I am hoping to beat that very soon.  I have used the 52 Week BINGO Money Challenge to pay off my credit cards completely, save for my birthday plans, and even gifts for family and friend during the holidays.   Want to join this money saving challenge?   Click here for more information and to grab your FREE copy of the money guide.

4.  Tackle Your List.  I revealed in the post, Tackle Your Credit Card Debt Today, that as of January I started with $5300 in credit card debt.  I have reduced my debt down to $0.00  by paying a little over the minimum and applying the money challenge money to the balance EVERY Friday (I have yet to miss one), but that was interest is killing me.   While making additional payments to the credit card, I am making the minimum payment toward my student loans and mortgage.  Once the credit card was paid off, I will now apply that money to extra payments to my student loans and so on…this is called the Snowball Method.  Now, I will confess, if I had more debt, I would recommend switching between the Snowball Method and the Avalanche method, which we will discuss later in the Financial Cents series.

5.  Emergency & Savings.  Don’t forget to save that money you are no longer paying to others.  Use it to prepare for the future.  Emergencies will arise and more than likely something will come up that will cause you to tap into your savings….be prepared.

She Makes Cents Wants to Know If Personal FInance More Behavior or Knowledge?

{Chasing the Saturdays} How I Saved $500+ Before Breakfast!

she-makes-cents-saturday-post-breakfast

I woke up in a weird mood this past Saturday. I was torn between excited to tackle my never-ending to-do list and not wanting to leave the warmth of the bed. So what did I do?- A little of both. I grabbed the laptop and started to audit my flow of income and in doing so, I noticed I was missing opportunities to save more money. Before breakfast, I saved a little under $100 a year by canceling my cell phone insurance. It was one of those things that I should have done months ago, but never really got around to doing it. The two times that I actually thought about filing an insurance claim, the deductible was so expensive that it was better to just get a new phone and not having to worry about whether I would receive a new or refurbished phone from my carrier.
My first savings of the day energized me, so much so, that I called my dad to follow-up on his savings audit I did for him last year. Even when I showed my dad how he could save $1600, he actually never followed through.  It was time for me to take matters into my own hands. I started with my parents’ home phone and internet bundle and I canceled every service that they don’t use and wouldn’t miss. I reduced their monthly bill by $40 per month equalling to about $480 a year!

Are you overpaying for services you no longer use? 

Take a little time to review your statements from your service providers.  Remove extra services that you no longer use, are outdated, or that qualify as a luxury you could live without.  I did this a few months ago when I realized my cable bill included a football package.  It made NO sense/cents for me to pay for an added luxury that I didn’t even use.  Now, I am enjoying the savings more than missing the extra channels that I didn’t event know about.  If by chance, you have already eliminated every extra fee, then you should consider calling your service provider to see if there are any other discounts that can be applied to your account.   It may take a little time to get through your audit, but remember it’s better to spend some time to save some money!She Makes Cents logo

What Services Can You Remove From Your Bill to Save?
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{Financial Cents} Say No Social and Yes to Finances!

During the infancy of She Makes Cents, I started reading Shoo…Jimmy Choo by Catey Hill. This, I admit, was another book I picked up because I like the title.  In it, Hill goes beyond the standard advice to create a spending chart and record everything you spend your money on in it. She adds the recommendation to also include additional information such as who was with you and the motivation behind your purchase. I did this for about two months and learned that I often spent extra money when I was with one particularly close friend. I usually spent money on expensive lunches and after reviewing the spending chart, my motivation behind my spending was purely emotional. I didn’t realize that was I was spending a great deal of money simply because I missed hanging out with her like I did when I was in college. Fast forward almost two years later where I started repeating the pattern of emotional and socially inspired spending. With my current job, I got back into the habit of frequently going out to lunch with the girls. I didn’t want to miss the great conversations but most importantly, I didn’t want to appear anti-social.

She Makes Cents money saving blog for women

At the start of the year, something clicked for the Mr and me. Our view on how we spend money as a couple and individually has narrowed. We have become super serious about saving and making better decisions on how we spend our money. Does that mean no lunches with the girls? Absolutely not! It does mean that I won’t be going with them EVERY DAY for lunch or drinks after work, though. Instead, I am cooking more at home and packing more lunches. As much as I hate to decline a social invitation, I would hate it more if the collective whole of my socially motivated financial decisions were the reason I wasn’t truly living a fabulous debt free life. I am proud of myself. I find that I’m eating better and cleaner. I also becoming a better cook, which is always a plus, but more importantly, I have learned to say no to social and yes to finances!

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{Financial Cents} 4 Smart Ways to Spend Your Tax Refund

tax refund

 Have you ever gotten your tax refund and thought to yourself, it’s time to go shopping? I have. Growing up, my mom would take a large part of her refund and she and I would go on a shopping spree…even if it meant driving from mall to mall to find a wider selection or hanging out on a school night. That is how I grew up thinking about refund checks… like some sort of magical windfall of new shoes, purses, and dresses. Now fast forward to the present, I now know it’s better to try to break even than to get a fat refund. In reality, if you are receiving a large refund then you are paying too much in taxes throughout the year.

Divide and Conquer Your Money

If you are like me and you know you will be getting a refund of some sort, it is important to find a better way to spend your money than blowing it on a  new tv or handbag. Before you even receive your refund, you should already have an idea of what you may be getting back. Take this time to divide your money, so when you actually received it, you will be less likely to blow it recklessly because you have already decided where it is going. For some, this will take some serious financial discipline, but in the end, it’s worth it! I plan to make my money work for me by using these four categories below to get me started.

        • Fund your funds. If you don’t have an emergency fund of at least $1000, now is the time to start paying yourself.  You should think of this fund like those Chinese finger traps that kids used to pay with- it’s easy to put stuff in and difficult to take things out!  If you already have at least a $1000 Emergency fund, then you should take a percentage of your refund and put aside for your savings account.

        • Pay Down Debt.  This is the time to give your “snowball” effect an extra boost. Putting a portion of your refund toward your debt with the lowest APR (annual percentage rate) or lowest balance will help you pay get out of debt faster and feel good about your accomplishments.  Remember, you don’t have to have thousands of dollars all at once to start getting out of debt. Every payment above the minimum helps you get closer to your goal.

        • Take Care of Things You Have Been Putting Off.  If you have been meaning to call the plumber over to fix that leak you can’t find (raises hands) or get the brakes on your car checked out (raises hands) or even get the shoes with that weird heel repaired (raises hands) then take this time and money to do it.  These are things that people put off because they don’t have the money or time.  You now have the money, so make the time.

        • Prioritize Fun.  When budgeting your money, you have to remember to prioritize for things that bring you JOY.  Set a goal and when you accomplish it, tap into this category and unleash your fun fund.  This could mean buying those shoes you have had your eye on, a spa day, or planning that impromptu weekend with your loved one(s), girlfriends, or even by yourself!  It doesn’t have to be big, but it does help if it is something that brings happiness and drives you to work toward your goal. 

How Do You Divide Your Refund?

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{Money Challenge Remix} How to Save $1300+ On Any Budget

Click here for the updated 2016 version!

Okay, so we are just 3 weeks in and I started falling behind for my 52 week money challenge. I decided at the start of week one to try this challenge in reverse. That means I will be saving more money at the beginning of the year and less the closer we get to the holiday season. In my mind, this worked well. In reality, it could work well. So far, though, my results haven’t been all that great and the fact that the fiscal cliff has chopped a chuck out of my check, hasn’t helped. I thought to myself…”Danielle, how can you find a way to honor the challenge in a way that will not hurt you financially?”  Then I came up with the idea to create a “bingo” style format.  At the end of the year, I would still end up with the same amount of $1378 and if I am having a tough financial week, I can pick a lower amount to save.  I crossed off 52 on week one, and I will cross of 5 and 4 to represent weeks two and three.  I decided to share this to maybe motivate someone who may have been thinking about “giving up”. 

52 Week Money Challenge from She Makes Cents

{What’s Your Preference} Numerical Order, Reverse, or Bingo Style?

Email me if you want my handy Bingo Style Sheet!

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