Sinking Funds: Your Key to Stress-Free Financial Planning

03-15-2024

cindylundbergverdecm-com|03-15-2024

Tax time is just around the corner. Is it weird how it comes at the same time every year and for many of us it seemingly comes out of nowhere? And oops, did you have estimated tax payments set up and completely forgot to pay them again this year? Where are we supposed to come up with that kind of money in only a month?

 

You know, this problem can actually happen with a lot of expenses that we don’t have on our radar. How about the semi-annual auto insurance or those huge property tax bills? You’d think that by now we would have remembered them every year, but no, every year we seem to forget every single one. Then we scramble to come up with the money or end up putting something on a credit card.

 

So here’s what I think is the problem. It’s not about our brains. Even if we took a class on how to have a better memory, that won’t fix it. Because even remembering that it’s coming up, will not take care of the need to have the money when that expense comes up. Don’t rely on your brain to remember everything and then on top of that come up with a solution. That’s a lot to do at one time! Instead, have a system in place that will handle it for you. What is this magical system you may be asking?? 

 

Well, let me introduce sinking funds

 

What Are Sinking Funds?

Sinking funds are like your financial safety net. They’re funds set aside in savings specifically designated for future expenses. These expenses can range from predictable annual bills like estimated tax payments and property taxes to more unexpected costs like car repairs or home renovations. They can also include expenses like travel, clothing, random kids activities, personal care, annual subscriptions, etc. 

 

How can Sinking Funds Help?

  1. Managing your checking account: Sinking funds help remove the stress of fluctuating checking account balances. By setting aside money for known expenses, you can keep your checking account stable and avoid feeling like you’re constantly playing catch-up.  A lot of us may determine how well we’re doing by the amount of money in our checking account. But this amount can be deceiving. One month we feel great, but the next month, there goes two of those bigger random expenses and now we feel like we’re in the hole. However, if we’re accounting for these big bills throughout the year and saving for them, we just move the money from our sinking funds back into our checking account when they are ready to hit and in and out the money goes – not affecting us or our budget one bit. What a great feeling.
  2. Budgeting with Confidence: Ever feel guilty about indulging in a shopping spree or unexpected purchase? Sinking funds alleviate that guilt by allowing you to budget for these expenses in advance. Whether it’s clothing, travel, or entertainment, having a designated fund means you can spend without remorse. Now when we find those deals and spend a few hundred dollars, those moments aren’t painful anymore – they were actually planned.
  3. Emergency Preparedness: Sinking funds serve as your financial cushion in case of emergencies. Instead of reaching for your credit card when the unexpected happens, you’ll have a dedicated fund to cover expenses like car repairs or medical bills. This proactive approach to financial planning ensures you’re prepared for whatever life throws your way. Being prepared for emergencies helps take that extra piece of emotional stress out of the equation so you can focus on what’s important. For example, the unexpected car repair. Instead of having to pay the full $2,000 car repair bill, wouldn’t it be nice to just have to worry about $500 since you’ve been saving every month and have $1,500 sitting in your car repair sinking fund? Be your own emergency fund and don’t rely on a credit card. 

 

How do I start implementing sinking funds?

Creating sinking funds is simple. Start by identifying these non-recurring and random expenses and estimating their costs for the year. Divide that number by 12 to come up with a monthly amount. Then, add this amount to your monthly budget. Set up a separate savings account, you can open multiple Verde Flourish savings accounts to account for different categories, or use a spreadsheet to track your sinking funds. Over time, you’ll build up a reserve for each expense, giving you peace of mind and financial stability.

 

So there you have it! Sinking funds are a powerful tool for managing your finances and preparing for the unexpected. This piece of my program has honestly been a game changer for a lot of my clients. By proactively saving for future expenses, you can eliminate the stress of surprise bills and budget with confidence. If you’d like setting up your own sinking funds and learning the rest of my full money management system, reach out to schedule a free consultation today. Your future self will thank you!

 

Verde Capital Management, Inc. is a federally registered investment adviser. The information, statements and opinions expressed in this material are provided for general information only, are based on data we believe to be accurate at the time of writing, and are subject to change without notice. Financial Coaching services are only provided to those with a financial coaching service agreement in place.  Investment advisory services are only offered to clients or prospective clients where Verde Capital Management, Inc.  and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Verde Capital Management, Inc. unless a client service agreement is in place.

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