If the holidays left you (…and your budget) feeling a bit, well, bloated, then it may be time to take a cue from this past season and plan ahead for those to come!
Introducing: a sinking fund.
A sinking fund is just another name for a savings account of sorts, whereby you set aside money periodically with the goal of funding a particular expense at a later date. You might already have sinking funds set up for a variety of reasons, but if you don’t, we recommend you give this method a try!
Step 1: Make a note of any major events or occasions over the next 12 months
Look through your calendar and jot down events as they arise – birthdays, anniversaries, school activities, license/renewal fees, sporting events, tax season…etc. These things all tend to cost money and, as you know, these costs can really add up! Make a thorough list of everything you expect to need to attend or set aside money for this coming year.
Step 2: Establish spending goals for each expense
Now that you know what you need to plan for, the next step is determining how much each of these events will cost. For example, you might find that you need to set aside a particular sum of money each year for the renewal of professional licenses. If this is the case, make a note of this expense and list the exact cost that you will be responsible for. Repeat this exercise for every item on your list.
Step 3: List all of your expenses by their deadline
Once you have a list of all of the expected events ahead for the year and their associated costs, it is time to list them by their deadline date. For example, if one of those “events” is school supply shopping, you might list that deadline date as September 2021.
Step 4: Create monthly savings goals for each event
Going back to our school supply example in Step #3, we know that you need to begin saving money to hit your school supply spending goal by September 2021. If, in this instance, your spending goal was $200 and the date we start saving is January 2021, then you’d need to save approximately $25 each month to arrive at our savings goal by September 2021 ($200 savings goal divided by the # of months until September (8) = $25/month).
Step 5: Set up automatic transfers to fund these goals
Set up automatic transfers from your checking to your savings account each month in accordance with your sinking funds goals. In the school supply sinking fund example, we calculated that we needed to save $25 each month for 8 months in order to reach our goal by the deadline. To make this process even easier, arrange for $25 to transfer automatically from your checking account to your savings account each month so that you can make sure to hit your goal.
Not sure how to set up these automatic transfers? We recommend giving Capital One 360 a try. Using this tool, you can arrange for automatic transfers to come from your current bank account to any number of savings “buckets” within your Capital One 360 account. It really is simple to get set up and we can promise that having these individual savings buckets is so helpful to building towards those goals.
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