My fellow 40-Forwarders, as we work together to be better money managers and to get our money straight, this past weekend something happened that brought home the importance of one of the principles I am learning from The Budget Mom (TBM) – sinking funds. Have you ever heard of this term?
Christmas ah cum (Translated: Christmas is coming) save fi yuh laawma (keep reading, you’ll get the gist of the meaning).
In essence what sinking funds are is “saving for something to come (in the future)”. If you save for it, you won’t go into debt for it – remember 40-Forwarders, we are coming out of debt! 🙂
Sinking funds prevent you from “pulling out your hair” or “getting hot and bothered” or “putting your hands on your head wondering what you are going to do” when something becomes due. Why? Because you saved for it – likkle, likkle (Translated: A little at a time).
So, from each pay cheque, whenever possible, you put aside a small amount for things such as:
- Christmas – gifts, decorations, meals, cake (my Jamaican readers will understand the inclusion of Christmas cake)
- Birthdays – gifts, parties
- Vacation
- Back to school
- Mother’s Day & Father’s Day
It is much easier to plan for things that have fixed dates. And you must set a budget for how much you plan on spending. The rest is just math.
You have 12 months to save for Christmas 2021 and you plan on spending $1200. It therefore means that for each month you need to put $100 away.
Here is another example, land taxes are due in April 2021 and they amount to $500 dollars. If you start saving now (Dec), you need to put away $125 per month. Rona V., your math is off!
Here is another good practice I learnt, set your target completion for the month before it is actually due. That’s why you have 12 months to save for Christmas 2021 and not 13 – Black Friday and Cyber Monday (great times to shop for everything Christmas) are in November, no need to worry, you got this covered! Sinking funds! 😉
Now that I am writing this post I realise that this is a similar principle to Mums’ Pawtna (OMG). What did I tell you, Mums is a master strategist, and a financier to boot! I digress, let’s get back on track …
Courtesy of TBM, I created “sinking funds” cash envelopes for a number of my annual fixed expenses and other recurring bills.
- Car maintenance
- Parents’ birthdays
- Car insurance, fitness and licensing
- Homeowner’s maintenance fees
- Credit card annual fee
- Gardening services
- Christmas
- Land taxes
You get the picture?! I encourage you to try setting up sinking funds for yourself.
When your expenses become due, no need to stress because you strategised. Just empty your assigned sinking funds envelope. Then repeat. No debt incurred!
So back to what happened last weekend. Thought I forgot? On my sinking fund list is “car emergency”. Let me head you off, this is different from my Car Maintenance (3-months checkup). Guess who had not one but three car emergencies at the same time?! Guess who have not yet started putting away for “car emergencies”? Ouch, ouch and ouch again! But, my dears, it really brought home the importance of sinking funds.
40-Forwarders, don’t sink (in debt), SAVE! Stay above water by sinking (funds). 😉 Let’s leave a legacy of waiting and “cash flowing” our expenses instead of “quick spend” and creating debt. In Jamaica we have a saying, “Likkle, likkle mek nuff nuff” (you figure it out).
Do you use sinking funds? Tell us about it in the Comments. Please SHARE this post to get someone on the “sinking funds” path.
Learning the discipline right along with you Rona V.