Sinking/Freedom Funds - How Do You Do It?

[MomToTwoBoys]

We all know the term Sinking Fund. Some people like to reference it as a Freedom Fund. It doesn't matter what you call it; it still serves the same purpose. It's a fund that allows you to put a designated amount of extra cash into a spare account for things that are expected, but not yet budgeted. People will actually budget the fund contributions in order to keep track of it. Other people will dump all of their extra cash and also keep track of it, but they don't stick it into their budget as a regular expense.

Seeing as things tend to happen at the worst of times to the best of us, a Sinking Fund/Freedom Fund is one of the best investments that we can make to ensure that our financial sanity is kept under control.

I imagine that a lot of people have several questions surrounding the fund's existence, but they're unsure of how to ask. Well, here's your chance! If you have a SF/FF or you're thinking of starting one, and you're absolutely unsure about the basics, feel free to ask away! I'm certain there's at least one person on this fantastic board who will be able to answer your questions and provide you with a concrete example to help you better understand what it means to have a SF/FF.

[dcompton]

I don't do it in any very formal way. I have a brick and mortar savings that I use for it - my long term savings is in online savings. I try to keep about 800 in it. My actual bills for a month run about 600 so I have that much where I can get my hands on it instantly in a real crunch. Our rent is a $60 late charge PLUS 10 a day. Not gonna happen!

I buget a lump sum for ordinary, daily expenses, all put on the CC. When the occasional ones like a medical bill or car insurance fall due, I put them on the CC too. If that makes the CC exceed the sum budgeted for it, I pull the difference out of the local savings account, and then build it back up. The CC is paid off monthly. I had to do this last month for a car maintenance bill.

I never let it fall below the core 600. I would pull any difference beyond that out of long term, and then work at building both of them back up.

I used to keep a spreadsheet showing what it was all earmarked for - this much for core bills emergency coverage, this much for insurance, this much for taxes, etc. It was just too detailed for me. Once the debt was gone and savings had built to a comfortable level, I felt I could relax the bookkeeping. Anyway, this works for me at present.

[ladykemma2]

here are my categories for my freedom accounts. it takes half my salary to fund them, and keeps me on the narrow path, and reminds me daily I DON"T HAVE AS MUCH MONEY AS I THINK I DO. i operate on "no surprises"

escrow (taxes/ins) 450
trash 17
home maintenance capped at 10,000
home owners association 34
flood insurance 24
termite contract 22
a/c heat maintenance 16
oil change 33
car maintenance 100
car insurance 62
car registration 5
car inspection 5
toll road tag 20
new car fund 250
computer replacement
annual endocrinologist 33
travel summer
annual optometrist 25
school startup 42
annual dentist 18
medical co-pays 10
vet bills 50
tax prep 9
xmas 16
office max 50
stamps 8
stocking up 50
shoes 45
work holiday parties 20

[Contrary Housewife]

We have sufficient income (at the moment) that there is a couple hundred left over each pay period. All I do is let it accumulate in the checking account. We are disciplined enough that it doesn't get spent just because it is there, we don't blow money on a whim, and it's nice to know it is there for an emergency.

[miaumiau]

I'm not sure if the saving I called "Buffer Fund" is same as Freedom/Sinking Fund, but that's where I pay out for scheduled but not monthly expenses. Also I have a different saving account solely for house-related expenses, like insurance, property taxes, maintenance, pest treatment..etc, can be seen on my signature page.

Usually what I do is to add up all the related expenses from last year to get the sum and then divide it by 12, and that's what I'm going to put aside every month along with the saving for various goals. It's hard to swallow once you list out everything on paper (well...on excel spreadsheet), then you realize you don't really have much to spend around as you thought. It helps keep you focus.........make you think twice before getting that grande cameral macchiato ....

[Denvergirlie]

I don't have sinking funds/ freedom account, but only because we have very few annual expenses.

I pay car insurance monthly, so no need to save that up over the course of 6 mos/ 1 year.

We also rent, way cheaper than buying a house, so don't have to worry about home ownerships costs.

The only annual bills we really have is car registration, maybe $100 a max, newspaper subscription, $50 a year, and a once yearly dr's appt which is a $20 co-pay. I also don't sink for car repairs.

So for us, it's just a non-issue of needing sinking funds/ freedom account.

When these yearly expenses hit, we just cash flow them and don't send as much money to the savings account for that month. We also handle random vacations (maybe 1 x a year) with our cash flow method.

That being said, I have a "hidden" $1K in my checking account, when my check register days $0, I really have $1K. And 6 month FFEF is online in ING along with current savings for car replacement fund. On an average month anywhere between $800 - $1400 goes into the savings account, these are monies that are not "needed" in a standard month. So for sake of ease, we just allocate money for larger purchases as needed and send less to savings.

However, if we did have a mortage, we would certainly do these sinking funds for repairs, taxes, insurance, and all the other costs that come with home ownership. Likewise if we had poor health and needed to see a Dr on a regualr basis.

[ladykemma2]

I'm not sure if the saving I called "Buffer Fund" is same as Freedom/Sinking Fund, but that's where I pay out for scheduled but not monthly expenses. Also I have a different saving account solely for house-related expenses, like insurance, property taxes, maintenance, pest treatment..etc, can be seen on my signature page.

Usually what I do is to add up all the related expenses from last year to get the sum and then divide it by 12, and that's what I'm going to put aside every month along with the saving for various goals. It's hard to swallow once you list out everything on paper (well...on excel spreadsheet), then you realize you don't really have much to spend around as you thought. It helps keep you focus.........make you think twice before getting that grande cameral macchiato ....

Brava! Brava! exactly!

[MomToTwoBoys]

I figured that since I made the thread, I'd contribute to it as well.

Our Sinking Fund/Freedom Fund is actually called a Slush Fund. We use my savings account for it because DH's savings account is there for other things, plus I'm usually the one that has more leftover cash at the end of the month.

Inside my Slush Fund, I put money in it at the end of the month or when I feel like I won't need to draw from it to pay budgeted bills. Sometimes I can put $500/mo in it and other times, it's less. Nevertheless, I do manage to put something into the fund to help out.

As far as the bills that drain the Slush Fund are concerned, we also have some bills that are spread out throughout the year that most people would pay at once. These are things like automotive insurance, house insurance, property tax, etc. A large concentration of bills come between July and October, then again from December to January. The other bills that happen at various times in the month are accounted for and then we just pull that much out when it's needed. We were going to try the method of adding them together and then dividing by 12, but the costs usually end up increasing each year and we'd be short if we did that. Automobile registration, school fees, birthdays, etc end up being more expensive the next year so that's why a large deposit at the end of the month and then a withdrawal when it's needed works well for us.

We do still keep track of those expenses, but we also make sure that we prepare ourselves in case something happens. The expenses that don't go into our Slush Fund list are the house ones because at this point, we're looking at a large chunk of change to make the appropriate changes and it's too much on me to also keep track of a second savings fund for that. At this rate, I'm thinking that a HELOC might be necessary.

[Greebo]

We use "virtual envelopes". We have funds for life insurance, auto maintenance, books/media/leisure, haircuts/perms, personal care products, gardening, gifts like bday/s and xmas, charitable giving, home repair, household items, and so forth.

Some funds are capped - we put in X a month up to a pre-determined amount. Others are unlimited - we put in X a month, period.

Each week we review our outflow and update our "envelopes". If we find we're over spending or under spending, we review and adjust contributions, or review and adjust our spending.

At the end of the month, we add up how much $ should be in those funds, and we look at the bank balance. Balance - funds = snowball for the month.

[monkeywrangler71]

We receive a lump sum payment at the end of the year, provided business is good (ie. every year except probably this one). I estimate how much we will need for the following year and leave it in the account, while the rest goes into long term savings or on the house.

[danni]

I have a slush fund that I use for this. I add up house insurance, property taxes and car insurance and divide by 12. Then put that amount away every month. We are hoping to up it to cover house and vehicle maintenance but haven't done it so far.