Sinking Funds- How to save for large expenses

When sticking to a budget (If you need help writing a budget, you can find that here ) my biggest priority after paying for my fixed expenses, is to contribute to my Sinking Funds (SFs). This is because SFs stop me from acquiring more debt.

In this blog post, I’m going to talk all abut SFs, what they are and how I use them.

What are Sinking Funds?

Essentially, all of the things that you expect will happen at some point, are covered with small amounts of money that you put away into an account every month.

I like to think of Sinking Funds as lifeboats on a sinking ship. All is going well, you are sailing along quite happily on your debt free journey, your budget is running smoothly, you are paying off your debts using your Debt Snowball (or Avalanche), when BAM! All of a sudden, you hit an Iceberg. That Iceberg may be a broken down car, or School Uniform costs, or whatever the case may be.

What Sinking Funds do is take away that panic of hitting the iceberg. So you aren’t left panicking about how you are going to cover that expense. In reality we know these things WILL happen at some point. Its unheard of for you to buy a car and NEVER spend a single penny on it and then sell it 10 years later. All cars need money spent on them, whether its expected or unexpected. The same goes for lots different categories.

Some examples are:

Christmas- It’s on the 25th December every year, plan for it!

Birthdays-Similar to Christmas, birthdays are

School Uniform Costs

Car Maintenance/M.O.T

Pet Expenses

Home Repairs

Clothing.

 

How to start Sinking Funds

The general rule of thumb is to work out what Sinking Funds you need, then work out how much you’ll need for each fund, divide by 12 and save that amount every month.

So, if you’ll need £250 a year for car repairs, you’ll divide that by 12 (approx.£20.80) and save that amount every month throughout the year.

Where that may not work is when you’ve only just started SFs and you have a shorter time to save for expenses. For example, it’s September and you haven’t any SF for Christmas, or is August and you haven’t any SF for School Uniform costs.

In that scenario, I would work out the BARE MINIMUM you can get away with spending for that item, and save for that first. It may mean having to scale back significantly on Christmas for example. In 2017, I only spent £250 on Christmas in total. I never thought that was possible, but I managed it. And I’m sure you could manage on an equally low budget, if push came to shove.

 

At What stage to I set up Sinking Funds?

If you are following Dave Ramsey’s Baby Steps (as I do) then you will start SFs once you are in Baby Step 2 (paying off your debt).

This is not something that you ever stop doing either, it will continue to serve you for the rest of your life.

Where do you keep your Sinking Funds?

 

It’s really up to you. I keep mine in a separate bank account, and transfer the money to them every month. I don’t have them in a high interest account, I just have them in a cash ISA that I can withdraw from quickly when I need to.

I know of some people who keep their Sinking Funds in cash in their house. If you are going to do this, I highly recommend checking with your house/contents insurance to see how much would be covered by them in the event of an emergency (fire, robbery etc).

 

I hope that helps!

Claire.

 

 

 

 

 

 

How to Write a Budget

 

 

Before we get into the nitty gritty of HOW to write a budget, first of all I think it’s important to explain why we might NEED to write a budget.

If we are aiming to pay off debt, or even if we are debt free but seem to have little to no money left at the end of the month, we are going to want to know exactly where our money is going. In the words of Dave Ramsey, ‘We need to TELL OUR MONEY WHERE TO GO, instead of wondering where it went’.

If you’ve ever attempted to write a budget and on paper it says you should have £300 a month left over, but you never actually do, you need a budget. In fact, whether you’re in debt or not, I believe that everyone needs a budget! Having a budget enables us to pay off debt faster and more consistently, build savings and invest more.

With that being said, lets look at the steps we need to take when writing our first budget.

Before you start:

-Make sure you have an hour or so when you won’t be interrupted. Don’t do it when you are in a rush or stressed. Not only will it become a hassle to even start writing a budget, but you’ll also miss out things because you are not focused.

-Get all of your paperwork together. Namely, your last 3 months bank statements. This is so you can look back on your expenses and Income to have a baseline from which to start, and also see what dates your Direct Debits and other payments come out.

It may also be handy to have your payslips for the past 3 months, although you may be able to get that info from your bank statements if you are paid via BACS.

-Make sure you include income and expenses for not just yourself, but also your husband, wife, children, pets and anyone else that you are responsible for.

 

First steps:

-To work out how things stand before writing your first budget, I recommend this online Budget Calculator from the Citizens Advice Bureau  https://www.citizensadvice.org.uk/debt-and-money/budgeting/budgeting/work-out-your-budget/budgeting-tool/  as it will prompt you for what to include and you can print and save the results.

This will give you a basis from which you can write your first proper budget.

Once you have filled in the Budget Calculator above, you’ll get 1 of 2 outcomes; your income is LESS that your outgoings, or your income is MORE than your outgoings.

 

What if I have more outgoings than Income?

The good thing about writing a budget is that you can see where all of your money is going, and more importantly, where your money is being wasted. So, if your outgoings are more than your income, you either need to increase your income or decrease your expenses.  For many people, the easiest category to cut down on is the food budget. Meal planning definitely helps with this, and you can see how I meal plan here http://themoneyfreak.co.uk/2018/04/01/how-i-meal-plan/

 

Now you can write your new budget.

Work out if you are going to write a weekly, 2 weekly, 4 weekly or monthly budget. This is individual to every person and will probably depend on how often you get paid. I get paid 4- weekly as well as monthly, so I do a fortnightly budget.

Be realistic! If you have been spending £800 a month for food, reduce it slowly. Don’t decide that the new food budget will be £300 a month. You’ll end up throwing in the towel and blowing the budget. Maybe decrease it by £50 for the first month and again by £50 the next month.

Don’t over complicate it. Just a piece of paper with Income on 1 side and Expenses on the other is perfectly fine. I’ve been budgeting for almost 2 and a half years and still use this method!

It is 100% normal not to get your budget right the first, second or even third time round! If you forget something the first month, just add it in to the second months budget so you don’t forget it again. Don’t give yourself a hard time about it, you are learning!

Budgets are fluid and they regularly change. The budget that you write this month may not work for you 6 months from now, or even 3 months from now. As your job, situation and family changes, so will your budget. I’ve had to change mine as children have left education, when we’ve added a new pet to the household and our diets have changed. There may be many other reasons why your budget will change from month to month.

For those of you who have an irregular income, Emma over at My Debt Diary has a great blog post on how to write a budget here

Once you’ve written your budget, how on Earth do you stick to it? To see what helps me, read my post http://themoneyfreak.co.uk/2018/04/20/how-to-stop-spending-when-paying-off-your-debt/

 

 

 

 

 

 

 

 

 

More Debt and Motivation

 

If you’re a member of my Facebook Group, you’ll already know that recently I have been finding my Financial Journey really difficult and am seriously lacking motivation.

I find that nobody ever talks about how being Debt Free is NOT the end of a financial journey but is the start of one. STAYING Debt Free is (in my experience) just as difficult as BECOMING Debt Free.

Unless I am the only person on the planet struggling with this (and I’m pretty sure I’m not!) then I hope this post will be helpful to someone else.

A few months ago, I decided to try and use a credit card sensibly, by buying all of my food using the card, and paying it all off in full. Well, fast forward a month and I now have £1k on the card and not enough money to pay it back in full. Plus, I had Direct Debits to pay and not enough money in the bank to cover them.

So, having learned my lesson, I am now trying to get back on track. These are the 4 things I am doing to help me:

  1. Cut up that Credit Card!

This was the first thing I did once I got my act together. I would love to be one of those people who can use a credit card responsibly, and maybe I will be one day, but at the moment I am not. So, to stop myself getting further back into debt, I cut it up.

  1. Get back to Budgeting.

While I was spending frivolously, I abandoned my budgeting altogether. I have gone back to writing out my fortnightly budget as I feel like this always helps me to see where my money is going, and how much I can spend/save/pay off debt.

  1. Meal Planning!

I normally ALWAYS meal plan, as you can see here: How I meal Plan. 

But with buying so much food and takeaways, I just totally fell off the wagon with meal planning. I KNOW this saves me money, as I have done it consistently for months while paying off my original debt, so I know I can do it again. It saves me time and effort as well as money.

  1. Sharing my mistakes.

It’s really important to me that I don’t keep this kind of thing a secret. For me, not admitting to it means that it’s not really happening, and I can keep getting away with it. I told the members of my Facebook Group that I was struggling and asked for support. I was worried about being a disappointment to them, as they were so supportive during my Debt Free Journey the first time round. But they were amazing, and I needn’t have worried.

 

Hopefully some of these strategies can help you if you find yourself in a similar situation. I know what I need to do, and I am doing it to the best of my ability. I am aiming to be Debt Free (again!) by the end of September.

 

 

 

 

Paying off Debt as a Single Parent.

 

If you are a Single Parent paying off your debt, you are no doubt already aware of some of the negative things about doing this by yourself. But there are also positive things too. As a Single Parent myself and having gone through my debt free journey as a Single Mum , paying off £12k over 2 years, I thought I’d share some of those positive points about being a single parent on a debt free journey. I’ll also share some things I did to help myself combat those negative things.

Positives of being a Single Parent when Paying off Debt

 

You don’t have to worry about anyone else being ‘on board ‘with your plans.

The only person you have to make sure is on plan, is yourself (and that can be hard enough!). This is one of the best parts of being a single parent is that once you decide to do something, you don’t really need to consult someone else. If you have older children, you might want to ask their views and opinions, or at least tell them that things will be changing. When I started getting serious about paying off my £12k debt, my children were 16 and 12. Up until that point, they had been used to getting toys, sweets, PlayStation games etc pretty much whenever they wanted. I explained to them that our money situation was changing and used it to teach them about why debt is bad, and how important it is to spend less that you are making. Luckily for me, my children were fine with this, and old enough to understand.

 

You have total control of the budget.

As a natural Control Freak, I love that there is nobody’s opinion to take into account, except mine. You don’t have someone telling you to put more/less money towards debt, less/more towards sinking funds, or to add new things into the budget. The only arguments you will have about the budget, is with yourself. Of course, this has its downsides too, but we will discuss this later.

 

You don’t have to be concerned about another person’s debt

This is hands down the biggest positive about being a single parent on a debt free journey. You won’t have unexpected or unknown about debt popping up! One of the main issues that I hear from married/co-habiting couples is the fact that they didn’t really know ALL debts that their partner had. As single parent, you don’t have to worry about that!

 

Generally, your expenses will be cheaper.

Things like Gas, Electricity, Water and Food bills should all be cheaper if there is only one parent in the house. Also, you will probably only have 1 car (so 1 monthly petrol amount, 1 insurance, MOT and Tax to worry about), 1 set of hobbies to pay for, 1 category for adult clothing. The list goes on!

 

Negatives of being a Single Parent when Paying off Debt

 

Now on to the not so positive aspects of being a single Parent and paying off debt. This is NOT meant to be a downer, but it is meant as a tool to keep us Single Parents on the ball, and aware of the pitfalls so we can avoid them or find ways around them.

 

You only have 1 income

This is the biggie, and the biggest barrier to Single Parents paying off their debt. We may only have 1 set of expenses and debt, but we also only have 1 income. Of course, this may not be the case if you have more than 1 job or have more than 1 income stream. But for the majority of us Single Parents, we only have 1 income. A great way around this is to add more sources of income. Things like Matched Betting, Freelance Writing, getting a 2nd job,

 

You may not have any real-life support

I found this one really hard. Nobody is as invested in your financial future as you are. Therefore, nobody wants to talk about it 24/7. If you are anything like me, you LIKE to talk about it 24/7 and are slightly obsessed. So, I set out to build that support, even if it wasn’t in ‘real life’ but online.

This is one of the reasons that I set up my own Facebook Group (https://www.facebook.com/groups/744129762449972/)

Although it is a small group of approximately 780 at the time of writing this (May 2018), I love the support and accountability we give each other.

When I get home from a long day at work, I don’t have a partner to tell how I didn’t spend any money that day, how I stuck to my budget, or how I felt I had failed and needed encouragement. That’s where this Facebook Group comes in. We all support and encourage each other, and sometimes give each other a ‘nudge’ if we are going off plan.

 

I hope this post has shown you that Single Parents can pay off Debt too! It may take us slightly longer, but the end result is just the same.

 

 

How to Stop Spending When Paying Off your Debt.

 

When I was paying off my debt, it seemed that no matter where I looked, other people around me were buying all the things they wanted, whenever they wanted! Sometimes it really tempted me to splurge, or even worse, to get my credit card out and abandon my Debt Free Journey altogether. Especially as I knew this would continue for 2 years while I was working hard to get out of debt. Nobody has an iron will that lasts for 2 years, so it was inevitable that at some point I would crack!
It was pretty early on that I realised that I had to come up with some ways to avoid that temptation altogether, or I would end up spending more than I had and getting into even more debt.
So, I came up with these 10 rules on what to do to avoid temptation while paying off debt.
Know Your ‘Why’
This is probably the most important thing that you can do while you are paying off your debt. Unless you have a really good reason for doing this, you more than likely won’t be able to stick at it for long.
You may already think that you know your why, but maybe ask yourself what it is about your Why that motivates you to work towards being debt free? For example:
I want to get out of debt so that I have more money. Why do you want more money?
So that I can save it instead of using it to pay off debt. Why do you want to save it?
I want to save money so that I can buy a house. Why do you want to buy a house?
To have financial security…And the questioning continues.
What was originally ‘I want to have more money’ is developed further. Only then will you know your true ‘Why’.
Give yourself some fun money so you don’t feel deprived
Nobody can live without any sort of ‘treat’ long term.  Allow yourself some ‘fun money’. This an amount that you put in your budget every month that you get to spend on what the hell you want. I’m not talking £500 to buy a new armchair though! It’s more like £30 a month to buy a new lipstick, or go to the cinema, or £10 a month to spend on a new book every month.
How much you get to spend every month will be determined by how much your income is, how much debt you have and how quickly you want that debt gone.
If you need help working this out, you’ll need to write a budget. See my post ‘how to pay off debt while on a low income’ for information on how to do this.
Unsubscribe from newsletters or emails from your favourite stores
Personally, I could not cope with seeing all of the sales and offers that were on at my favourite shops. It felt like I couldn’t escape from being sold something, even in the comfort of my own home! So, I unsubscribed from every shop that tempted me, which was pretty much all of them.
As well as unsubscribing to these emails, I also deleted all the payment details that I had stored on all of the places I normally shopped online. From supermarkets (Tesco, I’m looking at you) to Amazon. I deleted all of my payment cards. While that doesn’t stop you from actually visiting the site, it makes checking out and paying for anything significantly more time-consuming. If you are anything like me, that will be enough to make you not bother spending.
Don’t visit the shops!
This is a fairly obvious one, but if you don’t want to spend any money, then don’t go to the places where spending is not only easy, but pretty much encouraged. For some of you (and I speak from experience here!) going to the local Mall or High Street has become part of your weekend routine.
 I used to head to my local Mall, go straight to Starbucks, grab a coffee, then walk around the shops. I’d easily spend upwards of £70 and come away with not much to show for it.
These days I find something else to do, preferably something with no cost attached. In the nicer weather I’ll head out into the garden and potter about, or I’ll take my dog on a nice long walk.
Just find a free activity to replace that Saturday morning routine and save the Mall trips for when you actually NEED something.
Hopefully these tips will help you as much as they helped me. It can be so hard to resist the urge to spend, especially when your friends and family are spending money without worrying about it.
But just keep your eyes on the prize, it’s worth it. I promise!