Thursday, July 31, 2014

More About Sinking Funds

I know I've mentioned sinking funds in several past posts (herehere and here)
so I won't bore you with re-explaining what they are, but man are they important. I have learned and relearned that well funded and executed sinking funds will make a budget, and underfunded sinking funds will break a budget.

I have been "funding" our sinking funds since 2010 when we started our budgeting journey but it looks as though I've really under budgeted many categories.  My sinking fund categories at this point look like this:

1.  Home maintenance (suggested 1-3% of home value/year)
2.  Car maintenance  (suggested $75/car/month to cover maintenance, tires, repairs...)
3.  Clothes/hair  (look at what you usually spend... this is a personal category where only you can decide what will realistically work for your family. For reference, Dave Ramsey recommends 2-7% of your monthly budget for clothing.)
4.  Holidays (decor, Christmas cards, extra food for parties, wrapping paper, etc...)
5.  Gifts (b-days, Christmas, anniversaries, baby showers, etc...)
6.  Kids (activities, extra toys, books, homeschool stuff, etc...)
7.  Vacations
8.  Car replacement (I do not want any more loans!!!)

I have recently come to the important realization that I have been underfunding my sinking fund categories severely because I liked seeing the bigger number in the "savings" line item, but I had to start pulling from our savings. Big clue here! If you have to pull from your savings each month that means you have a leak in your budget, or your budget isn't realistic.  When this happens you may need to look back over a few months of bank statements to see where the leak is. Don't let underfunded or non-existent sinking funds ruin your budget!

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