Using sinking funds to afford special occasions all year long
We all know how expensive and stressful the winter holiday season can be. In fact, many Americans end up in debt by January every year because of it. But we also know that the winter holiday season isn’t the only time we spend money showing our love to others. We also have to celebrate birthdays, weddings, anniversaries, Mother’s and Father’s Day, and more. Plus, now that the world is opening up again, there will be a lot more special occasions being scheduled.
These occasions can certainly add up over the course of the year! And that can put pressure and stress on us and our budgets. That’s why it’s so important to use what are known as “sinking funds” to save up for all of the occasions. A sinking fund is money that you save each month to go towards a one time or irregular expense. Basically, you set money aside as a recurring monthly expense but then you only spend the money when it’s actually time.
How should you do this?
Review how much you spent on gifts last year
The year 2020 was not a normal year, so your spending might not be a good indicator of what your budget should be during a typical year. Even so, take a look at how much you spent on gifts and other celebration expenses. You can do this by pulling your bank statements or by looking through any budgeting platform that you use. This should give you a general idea of how much you spent on special occasions last year.
If you’ve never kept track of your gift spending, it’s not too late to start doing so. Sign up for a budgeting platform and categorize your gift spending. If you like a more manual approach, keep track of your spending in a spreadsheet. It’ll be much easier and manageable if you do this on a weekly basis, so that you don’t forget what your transactions were when you look back.
Decide if you want to adjust that number
If you look back at your gift spending number and are horrified, don’t despair. You don’t have to repeat that spending for years to come. You can take that information and decide how you want to change it. If you realize you’re spending much more than you’d like to, come up with a number that feels better but is still realistic. Perhaps you’re on the other end of the spectrum and the number feels too small. Maybe gift giving is your love language and you want to prioritize that in your budget. You can do that! Choose a number that is the total amount you want to spend on gifts and celebrations all year, or decide how much you want to spend on each individual occasion and add those up over the course of a year.
Break down the number by 12 or 24
By using sinking funds, you are saving up a larger amount of money by breaking it down to a monthly amount. Once you have clarity around the amount you want to spend on gifts throughout the year, divide that number by 12 (monthly) or 24 (bi-weekly), whichever works best for your saving approach. Breaking it down will make the number more manageable for you and you won’t get overwhelmed by the larger number.
Automate your savings all year
From there, you should automate your savings. Set it up so that you have direct deposit set up through your paycheck. If that’s not an option, set up automatic transfers to your savings account through your bank. If you are automatically saving without thinking about it, you’re much more likely to have that money available to you when it’s time. If you have to remind yourself to move the money, you’re more likely to spend it on something else.
Nickname the savings account
It’s much easier to save for specific goals if you earmark a savings account just for that goal. Open up a savings account that is designated just for gifts and special occasions. If you can, give that account its own nickname that shows what it’s for. You’ll be much more likely to use it for those goals, rather than for something else.
Buy gifts without stress or guilt
There are many people whose love language is gift-giving. A lot of those same people often feel guilty for spending money on gifts, even though it brings them joy. There’s no shame in spending money on things that make you happy or make others happy. The key is to build those things into your budget so that you don’t risk blowing your finances or going into debt. If you set up a sinking fund for gift-giving (and any other important goals), you are allowing yourself to spend without stress or guilt.
You don’t have to be wealthy to comfortably celebrate the people and holidays that you love. But it does take some planning and forward thinking. Using sinking funds throughout the year can get you there. Now go on and celebrate your loved ones without guilt!
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