Monday, August 29, 2011

The Sinking Fund

It's time for another mom tip!  I am so thankful for all of my friends and my family who have given me wisdom and advice over the years.  Some wisdom and/or advice has become a staple in our home, and other advice has not.  It didn't make the advice wrong necessarily.  The advice usually just didn't work for myself or for our family.  So, this blog is geared towards giving you something that works for me, and if it works for your family then that is great too!

I am not sure if this is a mom tip or a financial tip, but it is a tip I feel lead to share.  I had intended on writing about something totally different.  However, when I woke up in the morning having dreamed about writing on this subject and having the words already in my head, I took it as a sign that this was probably the subject for today.

What is a sinking fund?  It is an account, usually a checking account or a money market account, you set up where you put money aside to pay for unexpected and expected future expenses.  Dave Ramsey calls it a sinking fund.  Mary Hunt calls it a freedom account.  You might call it a rainy day fund.  Whatever you call it, I believe it is a necessary part of being a good steward of what God has provided and a necessary part of getting out and staying out of debt.

Expenses are going to come up.  Kids are going to need braces.  Cars need to be repaired and replaced.  Hail storms come, and you have to pay your insurance deductible.  Your child stands up on a bunk bed at a friend's house who has a ceiling fan, and there you are with him in the emergency room getting stitches.  Can anyone say medical deductible?  Your refrigerator will have run for 87,360 hours over a ten year period, and then are we surprised that it needs repair?

The sinking fund is so called, because it is where you put money to save it up so you can pay it out.  Sometimes it will be on the rise as you are saving and building it up.  Other times it will be sinking as you are paying for expenses.  It is not a retirement fund or a college fund.  It is a sinking fund.

Many years ago, I read a book called Debt-Proof Living by Mary Hunt.  After reading that book, Carl and I talked about expenses which were not in our monthly budget, but were expenses that seemed to always come up in which we needed to put money aside for.  We have added and subtracted from the list over the years, but the list stays pretty solid.  These are now line items that are built into our monthly budget.

Our main accounts have always been:
Auto-with an average of 10,000 moving parts per car something is bound to break
Gifts-because birthdays and Christmas come every year on the same day whether you have money or not
House-insurance deductibles, home repairs, projects, etc.
Medical-medical deductibles, braces, copays
Travel-our family and friends are all spread out so travel is a must

Over the years we have added the following categories, but you can have whatever categories you like:
Auto Replacement-because, God willing, we would like to never have a car loan again
Pet-vet bills, boarding
Kids-for extracurricular activities
Outdoor-because what is life without a little skiing, fishing, and hunting?

Sinking Fund Worksheet


We have one account which we use for our sinking fund, but I have it divided up on worksheets under categories.  I print out the sheets and have them in a three ring binder.  You could keep just an account for a rainy day without doing categories, but I like the categories.  It helps me to see where I am financially under that category.  For example, we are trying to save to go to Disneyworld.  So, I can go to my travel page and see how we are progressing in that category.

Why write on this subject?  Aside from the dream, I have had several friends ask me to explain to them how we have done our fund in the past.  I just have a passion for what is going on in our society right now.  According to Dave Ramsey and others I have heard, 80% of American families have $8,000 or more in unsecured/credit card debt.  So many families are one paycheck away from foreclosure.  Our neighbors foreclosed on their home this last winter, because they could not pay to repair the radiant heating system in their home.  It is just so sad that so many live beyond their means and don't put anything away for the future.  I strongly believe this is one of the keys to getting out of debt and staying out debt and being a good steward of what God has given to us.  With this account in place, hopefully when those unexpected and expected expenses come up, we can be ready for them.

"The plans of the diligent lead surely to advantage, but everyone
who is hasty comes surely to poverty." Proverbs 21:5

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