Over the last year, I have received a plethora of messages asking me about how I handle my finances as small business owner. To be honest, I was shocked to see others asking me about how I manage my money because almost five years ago I was not that great it, to say the least. I am proud to say my financial understanding and goals have done a complete 180, which I am very proud of. However, in those messages, I read your comments on how you switched to making Monday your money management day, started zero budget method, and switching over to Aldi.
First and foremost, I am not a CPA or a finance girl, to be honest, I just learn what works for me over the last couple of years. They have radically changed my finances which I love sharing these tips with others who are willing to listen. One of my biggest tips to share with others is creating a sinking fund for your finances. When I started my craze to radically pay off debt quickly by using the snowball fund, I learned about establishing sinking funds to help you not wreak havoc on your coinage. At first, I thought a regular savings account could do that, but then I tried it and omg it is a super game changer.
What Is A Sinking Fund
A sinking fund is a separate checking or savings account that you designate for a specific need of yours. For example, I have several ones that I use for my business and personal life. They help me focus on certain goals with my money without going crazy if something such as; my car breaking down and I pull the money from my car maintenance fund.
How To Start One
Everyone’s finances are different at my business highest revenue stream I was brought in $10,000 or more in a month. That gave me a plethora of disposable income to use how I saw fit. During this time, I was really focused on learning on how to manage my money versus being broke. I started by writing a list of all the things that come up every year that I forget but they are steadfast in my life. Here is my current list of sinking fund
- Home Purchase
- Car Maintenance
- Gift Purchases (family and friends)
- Kid education
Depending on your life they may vary for your needs. Here are some examples of other lifestyles:
- Student Loans
- House Fund
- New Car Purchase
- Luxury gift to yourself
You see now I am not really a traveler so that is not on my sinking fund list. Everyone’s list will look different depending on your goals. If you’re wanting to go Aruba for a week and know it’s going to be $1200 for flight, hotel, and activities you will create a fund for this need.
Dividing Up The Money To Fund It
Right now, my income is sparse, but I am believing God for a radical change really soon. YAY! Well, with my fiance income we do the sinking fund right now. We chose an amount we could live without noticing every month. Your number and our numbers may vary depending on your financial situation. Do what is best for you in this situation. We chose $50 per account which is a total of $300 for the month. For example, the Christmas we deposit that $50 for a consecutive 12 months that totals $600 for our shopping for the family, friends, and dinners. Because it’s funny how people always say Christmas crept up on them, and money is tight. It’s one of those things that happens every year.
Now think about your car which you have to do yearly maintenance on it. On my 2017 Elantra, I have to do an oil change 3-4 times a year depending on the mileage I drive. That is $35 per trip to the service center which amounts to $105-$140 a year.My sinking fund is $600 for the year that leaves me $495-$460 a year for other things such as; alignments, tire rotation, new tires and more. There is no panic when those arise in my life because the money is already sitting in our accounts. Personally, I bank with Navy Federal and my savings accounts are free no minimum to open or maintain a month.
Creating a sinking fund for my finances was one of the best things I could do for my business and personal life. Think of all the things you want to do this year, and do not want to stress about the monetary aspect of it too much. Why not create a sinking fund for this to make it easier on you.
Photo by Dan Dimmock on Unsplash