Even after many experiences of reviewing and managing money, unexpected expenses can arise. We all know that things happen, and if you’re new to budget and managing your money, you might feel defeated when you have struck a roadblock. However, these three lines of security will prepare you for whatever life has in store for you.
1. The Slush Fund lovingly known as “Just in Case”
I refer to the Slush Fund as extra money that hasnโt been set aside for anything specific; like my Sinking Funds, but it’s there as a cushion or “just in case” fund. This account is my Savings account from my local credit union, and it is how this Slush Fund began.
That entire “keep the change” fund assisted me in building a budget cushion to prevent any potential overspending. I don’t keep much money in this account because it’s just a cushion for when I may have a foolish spending moment. It is not intended to save me from extremely high costs. It’s just a checking account that helps keep the impulses in check and keeps me from completely ruining my finances.
This is just a modest sum of money that you pretend to be nonexistent unless you need it (less than $250). This layer of security will keep you safe from yourself and that foodie run you couldn’t resist.
2. The Sinking Fund
Sinking Funds, in my opinion, are one of the best ways to keep unforeseen costs from destroying your finances. A Sinking Fund is typically another bank account where money is set aside for a future purchase. Sinking Funds are used for the following purposes in my case:
- Medical costs (refills for prescription drugs, out-of-pocket expenses, etc.)
- Home maintenance
- Garden supplies
- Auto maintenance and repair costs
- Holiday gifts
- Pet expenses
- Yearly membership renewals
Simple things like an oil change are kept from destroying my finances thanks to these Sinking Funds. Sinking Funds are designed to save money for unexpected expenses that can impede your plans. For example, if you’re a loveable dog or kitty, you’re aware that your beloved will need to visit the vet at least once a year for vaccinations. So, it shouldn’t come as a surprise when they pay us a visit. The same is true for the holidays. Christmas falls on the same day every year, which isn’t surprising, but I can’t tell you how many Christmases I found myself in debt for because I hadn’t planned on time.
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Therefore, if you want to keep your budget in control, I strongly encourage you to use this line of security. It will keep all those unnecessary expenses that you should have anticipated from destroying your budget. If you are new to budgeting, check out my post on setting up one with ease! I offer a handy FREE downloadable worksheet bundle for you to use.
3. The Startup Emergency Fund
The final layer of security, but the one on which you should focus your efforts and resources. This is the most important because it is your lifeline. Life moves quickly, and the future is impossible to predict. You never know when life will spring up and smack you across the face. But I can assure you that it will appear and strike you when you least expect it. When faced with adversity, your Emergency Fund is your last line of security.
My advice to anyone who is trying to manage their money for the first time is to start with a Startup Emergency Fund. Your Startup Emergency Fund should be equal to one month’s living costs. So, if you haven’t already done so, look over all your spending from the previous month. Take out your bank statements from your checking account and credit cards – from anywhere you spend money.
Then go through the expenses, categorizing expenses together, and totaling them up. This will show you how much you spend on groceries, utilities, rent/mortgage, insurance coverage, and so on. And you can use the amount you spent on necessities as your Startup Emergency Fund amount. Then, for the next three months, work as hard as you can to save this amount.
Key Takeaways
Your Emergency Fund is more essential than all your other lines of security, so save that Startup Emergency Fund first before working on your other lines of defense. Remember, this is your last line of security, so it must be built first.
Once you’ve established your Startup Emergency Fund, select the most pressing Sinking Fund and begin building it. Choose a minimum amount for that account; once you’ve saved it, cease contributing to that Sinking Fund and redirect your contributions to your Startup Emergency Fund. Create a Startup Emergency Fund with enough money to cover two months of living expenses. After that, start saving for your next Sinking Fund. Repeat as necessary.
You can start your Slush Fund or budget cushion at any time by putting $5 or $15 in it with each paycheck. Once more, it is not intended to be a large sum of money. It’s only there to keep you from making stumbles. The goal is to have something – anything – from each paycheck that can cover silly minor costs in an instant.
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