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I never quite got my budget right until I started implementing these two steps. There was always an emergency, because we were not planning correctly, and we were always short on money, because we were not planning correctly. I am still not perfect and it is always an ongoing process.
There are so many options these days for bank accounts. There are your local banks, credit unions and online banks. It is so easy to set up an online account. I have two set up with Capital One 360, a checking account for my business and a savings account for our sinking funds (more on that later in the post). For a budget to run efficiently and effectively, you will need a few bank accounts set up. And I mean more than just one checking account and one savings account. As a family, we have two checking accounts and two savings accounts.
Our two main checking accounts are set up at our local hometown bank that I have been using since I was a little girl. Why do I use two checking accounts? Well, let me tell you. We used to have only one checking account and it was so hard to keep track of the money set aside for bills and for every day expenses. So, the need for a second checking account presented itself. My husband and I both make irregular income (more on that in another post), so it is very hard to budget sometimes. Since I have been tracking our expenses for so long and my budget for groceries and gas is pretty firm, I know that I need $xxx.xx in my everyday checking account. My husband and I both have debit cards for this checking account and we use it for gas, groceries and miscellaneous expenses, such as school lunches, school expenses, restaurants, etc. This is where I write checks out of also, since I have three teenagers who need money for everything!
I also know that I need $xxx.xx for bills every week. So I make sure that stays in the bill paying checking account. All payments that are on auto draft come out of the bill paying checking account, except for one that cannot be changed. This money is not touched. It stays there and builds up over time. I hope to have a one month cushion in that checking account very soon. It is so much easier to not have to worry about what the balance in the checking account is. I know that our bills will always be covered. Sometimes, on very lean weeks (remember, both my husband and I have irregular income), the grocery allowance may have to be cut in half, but we always make it work
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We have two savings accounts set up as well. One is with our local hometown bank and one is with Capital One 360. The local one is linked to the everyday checking account, just in case there is an overdraft. The local savings account holds our Emergency Fund, which at this point is $1500 (two of our three vehicles are at least 10 years old), and we have three teenagers, need I say more? Our two boys play hockey, so there is always an emergency during hockey season! The Capital One 360 savings account holds all of our Sinking Funds (keep reading). This money is available whenever we need it, but just a little harder to get to. You could keep your Emergency Fund and Sinking Funds in one account, but I like having them separated and one easy to get to.
What the heck is she talking about? Sinking Funds? Maybe you have heard the term thrown around and maybe it is brand new to you. The money set aside in a sinking fund is for a specific purposes, as opposed to money in an Emergency Fund, which is set aside for the unknown. Dave Ramsey uses Christmas as the perfect example for a sinking fund. So it’s April, and you know you need $1500 for Christmas. You have 7 months before you need the cash in hand to spend. So you divide that $1500 by 7 and you need to set aside $215 per month into your Christmas Sinking Fund. Sinking Funds allow you to plan your spending. You know how much you need and how you are going to use it. By the way, if you have not read Dave Ramsey’s book, The Total Money Makeover, you need to read it now! I read it every year and it has changed my way of thinking.
Examples of Sinking Funds
- Car repair/replacement
- Furniture replacement
- House repairs
- Sports Fees
- Medical Expenses
- Insurance – home/auto
- Miscellaneous – car registration, yearly renewals, etc.
You can either have a separate savings account set up for each Sinking Fund (Capital One 360 once again is terrific for this), or you can have all of your sinking funds in one savings account and use a spreadsheet to keep track of the balances. And get this, I have already set one up for you, be sure to download it! Make sure to save a copy for yourself so you can insert your own amounts and maybe change the funds around a little. This is what I use to keep track of the balances in each Sinking Fund I have set up. You can set up a goal for each Sinking Fund and track your progress every time you deposit money.
Sinking funds can help stop the cycle of using your credit cards. You know that Christmas is coming, or you know (as in my case) that Hockey fees are due in September, so add a line item to your budget and start sinking that money!
You need to have a plan for all of your money, whether you are spending it immediately or setting it away for long-term.