Tiny House, Tiny Living, The Tiny Life.

Posts Tagged saving

Why I Have 7 Savings Accounts

In an effort to not overwhelm my budget every month, I have set up seven (yes, seven) savings accounts. I lovingly refer to these accounts as my sinking funds, and they quickly became my pride and joy (aside from my children of course).

A Sinking fund is where you set money aside for expenses that you know will be coming up, those expenses that would feel like an emergency if you didn’t have anything set aside. Sinking funds allow you to save in smaller, monthly installments so that when the time comes you are prepared with money in the bank (think Christmas or those pesky car repairs).

What should you be setting aside money for?

Think about those larger expenses or special occasions that come up once a year that you wouldn’t likely be able to pay for in one individual month without going into debt. Your sinking funds can also include expenses that you know, eventually will happen.

Our sinking funds include:

  • Car Maintenance
  • Home Maintenance
  • Christmas/Holiday
  • Taxes (my husband is self-employed)
  • Medical Expenses
  • Car Replacement
  • Other yearly fees

How much should you set aside each month?

Luckily this does not involve math that is too complicated. No fancy formulas required. All you simply have to do is consider how much you would like to spend and divide that by the number of months you are going to save up for.

My husband and I decided that we would like our total budget for Christmas to be $1200. That means that since January, I have been setting aside $100 into my Christmas sinking fund.

For something like Car Maintenance, take a look at what you spent on oil changes and repairs last year, divide that number by 12, and that will tell you what you should consider setting aside each month.

If your car is nearing the end of it’s life expectancy, setting aside money into a separate account will give you the ability to pay for that next car with cash. First consider how much you would like to spend on your next vehicle and divide that number by the number of months that you will be saving for. Instead of paying the bank or loan company car payments, plan ahead and pay yourself a car payment. Not only will you be avoiding debt when you have the money in hand, but you’ll be earning interest while you save rather than paying interest if you finance.

There are many ways that you can track the amount you are saving. One method would be to set the money into one savings account and then use a spreadsheet to track how much in that is set aside for each fund. The other option you have is to look into No Fee Online savings accounts where you can easily name and keep track of your sinking funds.

When looking for your savings accounts, you want to be sure that they are no fee. Be sure to avoid those banks that charge you a fee for withdrawing your money from your savings account. The other thing to be on the lookout for are the interest rates that your money will earn while it is in savings. Although the interest will not make you rich from these accounts, you want to look for the most competitive interest rate you can find.

How ever you decide to set aside your savings, you’ll feel great knowing that you’ll be prepared with money in the bank. The holiday season is so much more enjoyable when you know that it’s been paid for with cash.

Your Turn!

  • What are some big-ticket and not-so-big-ticket stuff that you are setting some money aside for?

 

How Little Can You Live On?

As of late I have been looking into what it costs me to live the life I lead.  I generally don’t spend a lot of money, a lot less than most of my peers, but I still don’t think where I am at with my spending is good enough.  Then I went over to Early Retirement Extreme where I reread some of their articles and I was very impressed on how little Jacob lives on….  $8,000 a year!

Come this summer I will have a yearly cost of living of $15,000.  Like Jacob, I am single with no kids, which inherently drops my costs significantly.  Here is a general summary of my costs:

  • Cell phone $80
  • Food (grocery and eating out): $350
  • Utilities (power, water, gas, internet): $150
  • Gas:$150
  • Car (savings): $200
  • Spending/Entertainment: $200
  • Insurance (employee portion): $45

Monthly Total: $1175

retirement_jar_custom-e47537ac27aa5cf9b11f4e4732c87e1def232852-s6-c10So obviously I am almost double the cost of Jacob’s spending, but I have elected for some things that he’d label as “luxuries”.  Namely a car, eating out and I also have a much more comprehensive insurance package.  For the things not included: taxes and car insurance, that is where I get the difference between monthly ($1175 x 12 months = $14,100) and yearly of $15k.

For retirement savings, paying off student loans etc I make a lot more than my costs; so right now I focus on double and triple paying my student loans each month.  Once that is gone I will be shifting that focus to building my retirement account.

Part of what ERE points out is if you can drastically minimize your monthly costs, you can retire much earlier than most.  It certainly is a balance of living comfortably vs saving so much that you don’t enjoy it, but I think living comfortably is much less than most people think.

Your Turn!

  • How little can you live on (what does that cover)?
  • What are things you gave up or wish you could give up?
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