How To Start A Budget: Sinking Funds & Debit Cards

Alright everyone it is time for the final installment in my how to start a budget series. 

So lets finish this series up!

What is a sinking fund?

A sinking fund is an event that is off in the distance that you will need money for. Some of the most common sinking funds that come to mind are Christmas and vacation. Sinking funds allow someone to set aside money for a certain event that will be happening in the future. Christmas is by far the #1 sinking fund that I recommend everyone to have. I can not tell you how amazing it feels to have Christmas roll around, money set aside for presents, no over spending, no worry, and budget intact. It is truly the greatest feeling in the world, in the financial world at least lol. 

So why have a sinking fund?

Sinking funds allow money to be set aside for a future event and help to reduce worry about having money for that event when the time comes. Nothing is worse then Christmas being a month away and not having any idea how you are going to pay for presents, food, and everything else that comes along with it. Having sinking funds makes saving for that event a little bit easier, as money is slowly put away over time opposed to one large sum being withdrawn from your account. Sinking funds just simply help with preparing financially for any event in the future and helps ensure the money will be there when you need it.

So how much money do you put in?

If you haven't read/watched Part 2 in my budgeting series I would highly recommend it. How you determine much money you put into your sinking fund is the exact same method for deciding how much to put into your envelopes. Determine how much money you need for X event, how many months you have to get that money by, and then simply divide the two. For example, we want to have $500 in our Christmas envelope by the beginning of November. This gives us 10 months to save up. $500 divided by 10 months means we would need to put $50 away every month in order to have $500 by November. Now, I don't know about you but I would much prefer to put $50 away each month instead of waiting until November and trying to find where that $500 would come from or withdrawing that large sum out of our account. It makes the amount a little easier to swallow, if done in small amounts each month.

Alright so I know what you are thinking. I would love to use the envelope system but.........

I hear it all the time, the reasons why using envelopes just wouldn't fit your lifestyle. That you prefer to use your card instead, that it is more convienant to use, and what about the rewards you get when you use your card. I get it, I really do! Swiping a debit/credit card is quicker and easier, so how do you stay on budget while still using your cards?

Lets talk credit cards.

While, I personally do not like credit cards, I know others who love them and swear by them. So how can you stay on a budget while using a credit card.

1. Have a written budget. Regardless if you are using cards or cash you need to have a written budget in place for your money. Even if you use cards, it is still important to know how much money you are bringing in and how much money is going out. You need to be budget concious with your money, even more so with cards then cash because you can't phsycially see how much money you have left after each purchase.

2. Pay that card off!!!! DO NOT just pay the minimum. If you are going the credit card route, follow your budget, and when you receive the bill in the mail pay it ALL off. The fastest and easiest way to get yourself into debt is by not paying off the whole amount, which allows more and more transactions to pile on and this can quickly escalate leaving you buried in credit card debt. 

3. If you won't have the money to pay off your card in full, don't buy it! Another way to look at it is if you had cash on hand would you still buy that item? If not, good chances are you should not put it on your credit card. It is important to always be mindful of your money and make smart choices. Think about if you had $50 in cash on you, would you still buy the items in your cart? Chances are you probably wouldn't. It is very easy to buy more items then you would with cash, when using a card. Cash hurts to hand over, you want to keep as much as possible, so with using a card you don't feel the same pain in swiping the card and more then likely will buy more things then you would have if paying in cash. 

...but what about debit cards?

All the rules with using a credit card can also apply to using a debit. However, using a debit is a little bit closer to using cash then a card since you can only spend what you have in your account. So if you use a debit card keep these things in mind.

1. ALWAYS know how much money you have in your account at all times. DO NOT  just guess how much money you think you have. This is a sure fire way to over withdraw from your account which can lead to nasty fees, sometimes up to $50. DO NOT let this happen to you. Be mindful of your spending and how much money you have in your account. If you are not sure, either look it up (most banks have online apps for your phone) or put stuff back until you can be sure. Thinking you have enough money or thinking you will just pay the overdraft fee if you don't, is not smart. Everyone makes mistakes from time to time, but a mistake that could be avoided with just a little effort on your part, there is no excuse for.

2. Budget your money either through manually keeping track of every transaction or through the use of apps. If you choose to keep track of your money manually, sit down and come up with a budget, take envelopes or a notebook, write down the categories and how much money you are allocating for each category. Use this budget just like you would if using cash envelopes. Every time you swipe your card, write down how much money you spent and deduct it from the correct category. When you reach zero in the category, DO NOT use your card for anymore purchases in this category. This can be quite difficult for some, since using a card is a little bit harder to keep track of. Small purchases such as a $1 here or $3 there can easily be forgotten and not written down. So, if you are going this route make sure you are dedicated to it and you trust yourself to be responsible enough to keep track of each and every transaction. One missed transaction can easily ruin your budget.

Let's talk about apps, mainly Mint.Com 

Mint.Com is a budgeting app that I have personally used in the past. It is almost like a virtual envelope system.  You sign up for a free account, enter your information such as checking/savings account, any student loans or credit card debt you may have, your income, and then the fun part, setting up categories. So, just like you would the envelope system, Mint.Com lets you set up categories, you can make as many as you want and the neat thing, every time you use your debit card, it shows up on Mint.Com and gets placed in the appropriate category. So say you always buy gas from XYZ, every time a transaction shows up from XYZ it will automatically be placed in the gas category. You can even set up budgets for each category, the same you would budget your cash in the envelopes. If you budget $50 for gas for the month, Mint.Com will show how much you have spent and how much you have left out of that category. You can also add goals, such as a savings goal of $500, you can then track the progress of that goal. It really is an all around neat app.

To make matters even better, if you want to be able to use Mint.Com on the go, you can download one of their many apps for anything from a tablet to the iphone. You can also set up bill reminders and choose when you want to receive those notifications (a week before it is due, 2 days before it is due, etc) and you can have the reminders set to your email, phone, or even both! No reason to ever forget when a bill is due ever again lol

Alright everyone, I have shared everything I know about starting a budget, the rest is up to you now. I hope you enjoyed this budgeting series and was able to find some of it at least a little bit helpful. I wish each and every one of you a financially happy year. Now go do that budget!!!