Sinking Funds To the Rescue!
by Amy Greene |
We spoke about cars last time, and how they can be reliable much longer than most people think.
One way to ensure your car remains reliable is to take good care of it! That means proper maintenance and upkeep – which doesn’t come for free.
I always – ALWAYS – recommend to my clients that they set up a sinking fund to cover car maintenance costs.
What is a sinking fund?
A sinking fund is a savings account or fund that you create to save up for upcoming and known expenses. It’s a line item in your budget so you can set aside money every month to build up the fund. Examples can include Christmas, Vacation, Home Repairs, a new couch, kids summer camp, Invisalign, car repair/replacement, or a kitchen remodel. Basically, anything that requires some money to be set aside or saved for over longer periods of time in order to purchase.
For a car maintenance fund, I recommend you put at least $50/month into that fund to start. If you have two cars, $100 if you can swing it. This way in 12 months you’ll have money to cover a more significant repair such as brakes or maybe even tires.
If you are budgeting, say, $100/month for 3 months and have built up $300, and then you get an oil change for $60, you’ll still have $240 in your sinking fund.
If you know your tires are getting old, or that it’s been 5 years since you replaced your car battery (this may have been me…), plan ahead. What will the job cost, roughly, and when will it need to be done? You always want to save the money sooner rather than later, so if you know it’s been awhile since your last tune-up or your brakes are getting worn, then buckle down and save up some money to get them fixed to stay safe.
Case in point: I just replaced my tires, and while 3 of the 4 were okay, they all needed to be replaced. They’d been on there for at least 40,000 miles (maybe more), and the mechanic found some dry rot. They were on my car for about seven years which is a pretty long time! A set of all new tires was $1,400, however, it wasn’t a big deal as we have our maintenance fund. We simply transferred the money from savings to checking and got it taken care of.
What Do You Need to Save For?
Take a moment to think about what’s coming up for you and what you’ll need to save for. Do you need to save Christmas (it comes in December)? An upcoming vacation or travel expenses? Are you in need of a new mattress or perhaps you want to upgrade your appliances, or even renovate a bathroom. Everything takes money, and the last thing we want to do is to go into debt for things we know are coming.
And if we know it’s coming…
It’s NOT an emergency.
That’s right. While you might not expect your roof to start leaking tomorrow, if you know it’s over 20 years old, we need to plan ahead to replace it AND pay for it.
“But Amy, that’s all fine and good, but I don’t have money left over at the end of the month to save for tires or roof repair. We’re trying to survive!”
I hear you, I do. Start with where you’re at. Create and follow a budget. Cut cable, switch cell phone providers, get a second job or work OT, and sell stuff around the house.
You can find a way when you really want to.
And if you need help, you know how to find me.