Category: Sinking Funds

I love me some sinking funds! We only have two to date, but you’d better believe I’ve written about them! They are an amazing tool to help with savings goals and to keep you out of credit card debt when the inevitable expense arrives. You know it’s coming, you might as well save up for the expense, am I right?

You can set up a sinking fund for any expense you know is coming and can’t cash flow from one budget month. Even better, put it on auto-pilot with scheduled monthly transfers and the money will accumulate without any additional effort on your part.

Going on a cruise for your tenth anniversary? Do you pay insurance premiums annually? You may have some home renovations you want to cash flow or want to pay cash for your next vehicle. These are all excellent examples of potential sinking funds.

HOW TO RECOVER THE BUDGET AFTER AN OUT-OF-CONTROL MONTH

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RECOVER THE BUDGET

HELPFUL TIPS TO RECOVER THE BUDGET WHEN THINGS GET OUT OF HAND

Maybe you just reached the other side of an emergency, visit from Uncle Murphy, or just got a little (or a lot) carried away with the holiday spirit. It’s not great, but it can happen to the best of us. Here are a few helpful tips to help you recover the budget after an out of control month or holiday financial hangover.

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RECOVER THE BUDGET BY STARTING WITH AN HONEST ASSESSMENT

First, you have to figure out where you went wrong if you want to get it right going forward. And be honest with yourself; did things get out of hand because of outside forces or was it all your own doing?

If things got out of control due to a visit from Uncle Murphy (remember Murphy’s Law, if things can go bad – they will) you weren’t prepared for then it’s time to beef up the emergency fund. If you just didn’t have one, then it’s time to start. You just saw first hand what can happen when you aren’t prepared for an emergency.

If there was no emergency perhaps you just got way out of hand with spending. It happens sometimes. I’ve been there, done that, and I don’t want to keep the T-shirt. You can read more about what to do When the Budget Doesn’t Work and get a little confession from me. Hint – sometimes it’s you and not your budget that isn’t working. It can happen to the best of us when we aren’t intentional with our finances.

If you spent way more on Christmas than anticipated, now would be a great time to start a sinking fund for next Christmas. Don’t make the same mistake next year; it falls on the same day every year so why not be prepared? It’s much better than the alternative.

Look over your holiday spending and determine if you went overboard. This should be very obvious within a week or two; kids lose interest in “stuff” fast. When half the gifts are collecting dust in a corner it’s probably safe to say you could cut back a little next year.

Once you come up with a practical budget, divide that number by the number of months or pay periods between now and when you’ll start your Christmas shopping. This is the amount of money you need to set aside every month in order to meet your goal.

TYPES OF ACCOUNTS TO KEEP NEXT CHRISTMAS UNDER CONTROL

Open a Christmas savings account and deduct a portion of every paycheck as we do, or simply set up an auto-transfer from checking to a separate saving or checking account.

The latter may be the best option if you shop throughout the year; there are penalties involved when a certain number of early withdrawals are made from Christmas accounts.

How you set money aside and what type of account you keep it in isn’t really as important as the fact that you do set money aside! Learn from your mistakes, don’t repeat them.

SET A MORE CONSERVATIVE BUDGET TO HELP RECOVER YOUR FINANCES

If you incur any debt during the out of control month, you will need to make pay off a priority in order to recover your budget. If you dipped into savings, priority one is replenishing the emergency fund before Uncle Murphy knocks on your door.

Have a budget meeting and buckle down! Do not allow this holiday financial hangover to linger! Set budget expectations that can actually be met going forward; it’s great to cut things from the budget, but you also have to cut them in real life.

Do not resume spending as usual or making unnecessary purchases until this additional debt is paid off or your savings balance is restored. This just makes good financial sense. Don’t make it worse by continuing bad habits and digging yourself a deeper hole. Savings are off-limits for unnecessary spending and so is the credit card!  ONCE YOU SET THE BUDGET STICK TO IT! Make a realistic budget you can stick to. It may be more beneficial long-term if you start by minimizing one area of the budget at a time. If eating out is your big Achilles heel and you aren’t much for cooking start by eating simple meals at home and swapping one or two meals out a week with less expensive convenience meals from your local grocer. It’ll save you some money and help you ease into eating and then cooking at home more often. I’d rather you start small with a problem area than try to go cold turkey and give up after a week or two. 

GET RID OF THE HOLIDAY FINANCIAL HANGOVER WITH A NO-SPEND CHALLENGE

It may make sense to do a no-spend month in January to recover your budget as soon as possible. February is also a great month since it is a few days shorter. I have a previous post called 3 Tips to Survive a No Spend Challenge you can read.

Kick your bad spending habits or debt to the curb as quickly as possible to recover your budget and get back on track. If you would be interested in doing a no-spend challenge with a Life on a Dime in the new year please let me know in the comments! I’ll also put up a poll on social media.

This can be a great way to start the year out right even if you don’t’ suffer from a financial holiday hangover. What better way than to do it with friends and give yourself an added layer of accountability. Let’s get the budget back on track as soon as possible.

NO-SPEND DAYS I try to do a minimum of three no-spend days a week. It is much easier than tackling a full month or year. Since I am a stay-at-home mom and our two-year-old has appointments in the next-largest town I save any “in town” errands for those two days. Mostly this saves money on gas but also prevents a lot of unplanned purchases. I limit online shopping to once a month just to make things easier as I have to drive into the post office to pick up packages.

APPROVED SPENDING ONLY

If it isn’t in the budget, don’t buy it. It’s as simple as that. Talk with your spouse or accountability partner (these are great to have and keep you in check) on a regular basis about purchases or expenses coming up. Build what you can in your budget and table the rest. Prioritize needs over wants. If it doesn’t fit, revisit it the next month. Chances are you will do fine without it.  Once you have all of your necessary expenses accounted for if there is any room left in the budget put it toward recovering from the out of control month. Do this as long as it is necessary. If you want to continue paying off debt or building savings up then press on while you have some momentum! Things get easier when you see the needle move!

THE NEW YEAR IS THE PERFECT OPPORTUNITY TO MAKE A FRESH NEW START WITH YOUR FINANCES

Whatever financial mistakes you made in 2019 do not have to be repeated in 2020. But you do have to pay for them. Recover from not so great past financial decisions as quickly as possible so you can build a healthier financial future. 

I’m not talking about simply making “be better with money” a new year’s resolution. I’m talking about making a long-term commitment to improving your financial situation. Being a good steward of our finances requires diligence, dedication, and organization.  If you are new at budgeting, I have lots of helpful articles on the subject here on the blog. Subscribe before January 15th, 2020 and you will automatically be entered to win this Erin Condren Budget Bundle. With budget spreads, checklists, and functional stickers it will definitely help get the job of organizing your budget done and make it a little more colorful! 

While past financial mistakes can slow you down, you can recover the budget and make better choices going forward. Keep going, learning, and working on that budget. So what are you waiting for? Get frugal and then live frugal my friends! 

recover the budget

HOW TO FUND AUTO MAINTENANCE: OUR NEW SINKING FUND

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fund auto maintenance

If You Own Vehicles You Need to be Able to Fund Auto Maintenance

We own vehicles. Three in fact. We each have our daily driver plus a spare vehicle we can haul a trailer with and use if a daily driver is down for repair. They are not new cars, in fact, the newest is a 2013 model. They are however good cars, and since we’d like to keep it that way we decided it was high time we set up a fund for auto maintenance.

If you are like us and live in a more rural area, commute to work, or just don’t like public transportation you probably own an automobile. If you live in a more densely populated area with mass public transportation you can probably get by quite comfortably without one. That’s awesome too.

Kudos to you if you paid cash or are on your debt-free journey to pay the thing off early! We financed every vehicle we’ve bought in our adult life and paid them off two to three years early. We hope one day to put ourselves in the position to pay in cash for reliable vehicles.

Cost of Driving Older Vehicles

AAA estimates the average newer vehicle will cost an owner $1,186 a year to repair and maintain. That’s almost $100 a month. Expect to pay a bit more than that if your vehicle is older; vehicles can need additional services once they reach a certain mileage to keep them in good running order.

At just over 100,000 miles on the odometer, my vehicle is due for a transmission fluid change. This expense spurred us to set up a separate account to fund auto maintenance. We budget a certain amount every month for potential auto needs, but we do not separate the money out. We typically reappropriated unused funds to another budget category at the end of the month. Not anymore! We have a sinking fund in place now.

If you’re not sure what a sinking fund is or what other categories it may be good to have one for, check out my previous article, A Quick Intro to Sinking Funds or just search the Sinking Funds category for all related posts on my site. They can be a very useful budgeting tool. They can help you avoid putting expenses on the credit card or draining your emergency fund (please tell me you have one of those) for routine expenses like auto maintenance.

Take good care of your vehicles and the cost to maintain them should be pretty predictable. It just makes sense

When You don’t Budget for the Unexpected…

Remember our old friend Murphy? He came to visit and decide to extend his initial stay last month. We were already paying off medical bills and were now faced with more. And we were just starting to get serious about that all-important emergency fund when Murphy came knocking.

We didn’t have any particular amount set aside for car-related expenses rather than budgeting for oil changes when needed. Occasionally my husband will inform me of an upcoming routine expense outside of oil changes and we will work those into the budget as well.

But we didn’t have money set aside for unexpected or future auto expenses; when my husband took our daughter swimming and got hit by a deer we were very lucky that not only was everybody okay (except the deer) his car was left driveable.

The headlight is damaged but still works. The small tear in the bumper is not that noticeable… yet. We didn’t have a solid plan in place for car care and therefore both items are just going to have to wait until we have the funds available.

Now that we have an account in place I will be making monthly deposits to the account whether we need work done that month or not until we get it up to a healthy balance. This may be a while as we need the abovementioned transmission servicing, headlight, and will eventually need to address the bumper.

I will be the first to admit this adulting thing is hard! The best way to do it is to learn as you go. So lesson learned, auto maintenance fund started, and we will adjust the budget going forward so we are contributing to this new sinking fund and do not have to resort to credit card use or neglecting our vehicles.

Do You Need an Auto Maintenance Fund?

Do you use a sinking fund to fund auto maintenance expenses? How do you know if you need one? Luckily there aren’t too many questions to ask yourself to determine the answer:

  1. Do you own a vehicle? If the answer is no, then you probably don’t need one. If you want to buy a car you would be wise to start a sinking fund to save up for the purchase. Maybe
  2. Is it under warranty? If so do you fully understand what said warranty does and does not cover? Can you afford the repairs not covered? If the answer to this question is no then an auto maintenance fund may be a good idea.

Get Started

Let me know if you have any questions about auto maintenance sinking funds. Getting started is simple; chose to put ours in the same bank we have our Christmas savings account. We chose a free checking account and didn’t order checks through the bank. The minimum to open the account was just $100. The peace of mind we gained knowing we have a better plan for our money going forward is priceless!

For added accountability, we chose not to link the debit card to our Christmas account or allow transfers between the two accounts. These are two separate sinking funds and they need to stay that way! It took less than an hour to get set up and we walked out with our debit cards in hand.

That’s it for now; I think I’m going to pull up EveryDollar and update the budget! We have a plan now, so time to work it!

OUR EMERGENCY: WHY WE CASH FLOW MEDICAL BILLS

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cash flow medical bills and emergencies

If only I’d known how timely my post schedule was…

Just Tuesday I posted Emergency! Why You Need an Emergency Fund Now! I talked about how this particular item is our financial focus right now and where we are in the baby steps. Little did I know that Wednesday we would experience an emergency. Murphy must’ve heard me talking about him.

Our Emergency

In case you don’t follow @alifeonadime on Instagram, here is a little recap I posted after the dust settled:

My newfound love affair with glass is over. This dispenser shattered on the tile and sent us running to the ER this afternoon. 
Not long after I tried to deter my 2 year old from the lower shelves by storing things in bins he snuck in and pulled the dispenser off the shelf. 
We thought it was safe from his reach. We were wrong. Thankfully he appears to have avoided any permanent damage but we should know for sure in a few days. Praying that little thumb keeps moving. 
Today was by far my scariest moment as a parent yet. And I saw this kid angel flighted to Little Rock at 2 days old. This was unexpected and the sounds of glass and screaming are not going away from my memory any time soon. 
I am only posting this because he is currently sleeping on me. I am soooo thankful we have savings however small and insurance in which his deductible has been met. This is why we need emergency funds. Money was not on our list of concerns sitting in the ER through x-rays and shots and sutures. He was. I am so thankful we are not the typical household that could not cover a $1000 expense. I sincerely hope you aren’t either.

When I sat down two weeks ago and mapped out my blog posts for the month I had no idea that I would be the one needing them most. I guess this week I’m just posting my personal diary.

Medical Bills Happen

If you are breathing and especially if you have children you can expect medical bills. My husband has glaucoma. His eye exams are more in-depth than what vision insurance typically pays. He also goes every six months as opposed to once a year (ca-ching). If the pressure has changed, and it usually has, he gets a new prescription eye drop (ca-ching) and has a follow-up in two weeks (ca-ching) to see if it is relieving the pressure. If it isn’t, you guessed it, he gets new drops (ca-ching_ and another recheck (ca-ching).

Insurance Makes Things Interesting

To make things more interesting insurance takes a while to process the claims so it can be a few months before we see the bill. It is not uncommon to get two or three bills at once and sometimes they are already 60 plus days past his appointment date before we ever see the amount owed. Depending on the size of the amount due I typically just pay the oldest first and then pay the rest off in two or three chunks. It’s not perfect but it works. It seems expensive but he never seems to meet his deductible. Gotta love insurance.

To make our insurance situation even trickier our kids were double insured until last year when I left my full-time job. Prior to that, we hadn’t paid a dime for our son’s physical therapy that hadn’t been refunded. After my insurance expired we were surprised by a $600 bill from the therapy clinic. I called and it turned out that even though my insurance was secondary it was picking up the tab on everything while the primary insurance policy was just applying everything to the deductible.

January 1st rolled around and we had to start over on our deductible and there was no secondary insurance paying the balance. So we are making payments on that as well.

Why We Do Things This Way

You may ask why we don’t just pay the medical bills and be done. That is a valid question. Technically if you follow the baby steps you pay off all your debt before finishing your emergency fund.

We are also a single-income family at the moment. Heaven forbid my husband were to lose his job our little medical bills would not be our biggest concern. Our focus would be on buying food to feed our kids, keeping the lights on, and paying the mortgage so we could stay in our house. Paid off medical bills and little to no money in savings would not help us in that situation.

On the flip side, if we had an emergency fund not only could we feed our kids, keep the lights on, and stay in the house for a few months until we found a new source of income, we could also continue to make smaller payments on the medical bills. When it comes to personal finance you have to do what makes sense for your family. This makes sense for our family and helps us feel more secure.

SINKING FUNDS

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avoid that sinking feeling

Avoid the Sinking Feeling that Comes with not Planning Ahead

Set Money Aside for Larger Expenses in Advance

Sinking funds are an excellent way to cover infrequent, larger expenses and avoid that sinking feeling you get when you reach for the credit card to cover an expense you knew was coming but just didn’t plan for. They aren’t as complicated as they may sound either! We used them to cash flow home renovation projects and major purchases long before we knew what they were called.

In essence, a sinking fund is a separate bank account or cash envelope you contribute to for a specific, typically larger expense. Say you plan to “sink” money into vehicle maintenance, a new(er) car fund, or save for a down payment on a house. You may pay your insurance premiums quarterly or annually for a discount. You expect these expenses and set aside money on a regular basis. These are all sinking funds. You may have one or more going and simply refer to it by its purpose; the car fund, new house fund, maintenance fund…

More recently we employed the sinking fund method to cash flow our property tax bill. We set aside a specific amount each month for three months and then paid the bill in full. This avoided an uncomfortable budget deficit one month or the need to raid our primary savings.

Or, you may find it beneficial to set up sinking funds for other recurring expenses that add up but don’t necessarily happen every month. Examples include a birthday fund, Christmas gift fund, clothing, etc. Avoid that sinking feeling and the urge to go into debt when the kids hit that inevitable growth spurt or tear through the knees of all their good pants.

You know it’s going to happen, so why not plan for it?

If you have any questions or just want to join the conversation drop them in the comments to this post or send me an email. I would love to talk more.

SIX MONTHS TIL CHRISTMAS

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Will you be ready?

We are exactly six months away from Christmas; is your Christmas budget ready? Know how you’re going to pay for all those holiday expenses? If so, great! Haven’t got a clue? You still have time to get it together!

Our family has a sinking fund for Christmas. Every pay period $15 automatically gets deducted from my husband’s check and deposited into our Christmas savings account. It is on auto-pilot.

In the fall interest will be paid and a check is given to us to do our shopping. If I happen to find the perfect gift for someone on our list before that I can withdraw up to a certain amount without having to pull from another budget category. This allows some flexibility while still earning a little interest.

If that isn’t for you…

Not interested in setting up an extra account? Simply create a cash sinking fund and pull out a designated amount every paycheck or every month.

With a little bit of planning now you can still manage a little something special for everyone on your list without resorting to credit cards.

Set aside cash so you can be sure you have the funds in place to get your holiday cheer on when the time comes without reaching for the plastic.

Get a Side Hustle

Don’t have room in the monthly budget for gift giving? Get yourself a side hustle to set some aside for gifting and get a bit ahead of your expenses. Your bank account will thank you long after Christmas if you get your financial life in order now.

Downsize Your Gift List or Opt Out of Gifts Altogether

There is nothing wrong with this option either. The true spirit of Christmas is about a baby in a cradle who died on a cross for our sins. The gift giving commercial aspect isn’t a requirement for goodwill to man. Now is the time to let those you typically exchange gifts with that you are doing things differently this year. They may be relieved to save some money too.

If your extended family that gets together is simply too big to afford gifts for everyone participate in a name exchange and only worry about buying for one person. Let the kids exchange names too so they don’t go home empty handed or end up with an even more crowded toy box.

Have a potluck Christmas dinner and go caroling, check out the town lights, or attend a special service together instead of your annual gift exchange.

Is your Christmas budget ready? Let me know in the comments or head over to Instagram and join in on the conversation there! I’d love to hear your plans and how you plan to celebrate Christmas with your loved ones on a dime.

BIRTHDAY BUDGET WITH A LIFE ON A DIME

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birthday budget

June is the birth month for both of my children, which could really add up… if we let ourselves get caught up in the hoopla. Last year being our son’s first birthday we did give each a separate family party at home. This year with all the summer traveling going on we decided to do one backyard barbecue to celebrate both kids. One birthday budget for both kids.

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What a birthday like at our house

We had pancakes for breakfast and a simple meal of pizza at home on the day of my son’s birthday because those are his favorite foods. Just being two, and needing clothes for warmer weather before his actual birthday I took him shopping just the two of us and purchased four little outfits for around $20 ahead of time. We sang him Happy Birthday at every meal and had an otherwise typical day at home. And you know what? He felt loved and knew we were happy he is around. No clowns or bounce houses required. There is nothing wrong with those things, by the way, if you can afford them and have budgeted for them, but it just isn’t how we choose to spend our money in the birthday budget category this year.

birthday budget

On my daughter’s birthday, we will cook her favorite foods for breakfast and dinner and strive to make her feel special as well. There will probably be one gift to open. She will be six. We are teaching her to appreciate people and experiences more than stuff. As a wannabe minimalist who just purposely built a smaller house for the purpose of not accumulating stuff we decided to incorporate this into her gift and she will be starting martial arts classes. We just visited the studio this afternoon and picked up her uniform. It is a happy coincidence the next session starts on her actual birthday.

The birthday party on a budget

I have a total budget of $150 for the kids’ birthday party this month, martial arts lessons included. This will cover one gift to open from us each and food. For our son, I ordered this cute pedal-powered tractor. Our daughter is getting a T-ball set. We are keeping it simple. We already have condiments. The invitations pictured above were picked out by the kids at Dollar Tree. As the kids get older we will obviously invite more friends and have to plan more activity, but for now, this pace suits us just fine.

How do you budget for birthdays? Do you have a sinking fund? Allocate funds the month leading up to the special event? Please comment and let me know. You can also head on over to the corresponding post on my Instagram page, @alifeonadime and join in on the conversation there.

Happy birthday budgeting!