3 Steps to Plan for OH SHIT Expenses
You know the ones I am talking about. The ones that stress you the f*ck out every damn time. One that most people have felt before is a big car repair bill. The feeling when your car is sitting in the shop because of a noise or a pesky light, can be so stressful. I am here to walk you through how to make it less stressful.
Today, we are going to talk about sinking funds, what they are, why you need them and where you should start!
What is a sinking fund?? A sinking fund is money that is designated for a larger expense. Money that you save up over time, to make the impact of the large expense not be a huge pain in the ass! They can be for the OH SHIT expenses in life, like car repair, but they can also be for regular expenses that occur infrequently, like your car registration, property taxes or an annual insurance premium.
Why you need sinking funds! Yes, I saw that eyeroll. It’s the financial coach telling me what I need again. Stay with me and I’ll have you on team sinking fund in no time. Think about the last time you had one of these big expenses, how did it feel? Stressful, overwhelming? Maybe you were beating yourself up for not being prepared like you said you would be ‘next time’! Think about next time, think about having enough money in the bank, saved just for the purpose of your big expenses, sitting there waiting. How much differently will you feel? Empowered, prepared, like a freaking boss! This is why you need sinking funds. The situation is the same, but the feeling is SOOOO very different. I want you to have this feeling each time a big expense comes up.
Now, it’s time to get to work. Where should you start?
1- Build a budget (yes this is me on repeat) – you need to be able to clearly see where sinking funds fall into your overall financial plan. Not sure where to start with a budget? CLICK HERE to get access to my free easy to use template, it includes items that fall into the sinking fund category. Adjust it by cutting expenses, and if needed increasing income until it balances. CLICK HERE to check out my blog post on building your first budget, if you need some additional support.
2- Look at items that are infrequent in your budget (vacations, car/home maintenance, clothing, any annual fees), and break them down to monthly amounts or amounts based on how often you are paid (if you are paid bi-weekly divide by 26). If you don’t have room in your budget to include them all (yet), prioritize them based on urgency.
3- Start saving!!
a. Get your accounts open. I recommend a separate account for each sinking fund purpose, but you could also have them together and use something to track how much is for each purpose. I like to keep it simple with separation. Figure out where it makes the most sense to have your sinking funds. Consider if it makes sense to have them at your main bank or if that will cause too much temptation. How easily you will need to be able to access them, also needs to be a consideration. You want to be able to add these accounts without adding any bank fees, which you can typically do for savings accounts. Lastly you should think about how much interest you are earning-don’t make the choice solely on interest, this should be a small consideration.
b. Decide if manual or automatic is the way to go for your transfers. I recommend automation to make your life easier, but if that feels stressful, start by doing them manually, until you feel comfortable with automation. If you go the manual route, add a recurring reminder to your phone so that you don’t forget. Depending on where your priorities are, you may want to focus on funding one first, before putting money into the others, or you might start putting money into all of them right away. It depends on how much room you have in your budget and what large expenses you may have coming up.
c. Lastly, DON’T TOUCH, unless it is for one of the expenses you are saving for. J
Happy saving!
-Sherry
