Planning to Live in Retirement Edition 4:Sinking Funds for Wants
We all have our necessary bills, though definition of necessity and what bills vary person to person, family to family. After housing, food, utilities, pet food and supplies, gas are covered, the rest of any remains can be spent or saved.
We've long had a system of putting money for periodical but required bills in an account each month to ensure we can pay those bills. Car and home insurance, property taxes, and car and maintenance are deposited at the same time I pay the monthly bills. Unique to me are also veterinarian costs, boat costs (for now), and cabin expenses. I'll call them sinking funds, a fairly new to me term I've read from other bloggers. Essentially each dollar set is aside for a future obligation so not caught short when the expense is due.
In my budget, I have line items for discretionary spending that I treat as bills too including my church, another regular donation, and streaming services because they are the same each month. Other more fluid discretionary items are still planned for the budget, but might be higher or lower month to month, but I try and balance them overall. Dining out or other entertainment, parties and gifts, new clothes, additional donations, and "stuff" falls under this.
Just like the periodic bills must budget for, I use the sinking fund for bigger, infrequent discretionary spending. I save for Christmas this way and for travel. I aim to put a set amount aside each month when I transfer for the required items. I probably should start adding for a car replacement for someday at some point. My car though is under two years and under 24,000 miles so good for quite a while, but still a consideration if I want to avoid touching long term savings when the time comes. Can you tell I never was the one to deal with the cars before?
I didn't mention emergency savings. That too is planned, a minimum each month to ensure I have six months of living expenses covered. I'm trying to build that to 12 months. Others may never feel more than three months is needed and others will think not less than 18 is sufficient. Twelve is my goal as that would give me peace of mind in retirement should my accounts take a hit and need time to rebound. Of course, the sinking fund for discretionary could also be tapped for emergency, forgoing travel or being very lean at Christmas.
As I've done this kind of budgeting as part of my job for decades, it's not daunting to me. What weighs me down is the unknown. Taking my working life strategies into retirement, including planning for fun with friends and family, helps me feel less heavy.
Your recent financial posts have been mirroring what has been going through my mind and, increasingly, our discussions. Emergency fund? Covered. Sinking funds? Yeah...need to look at that as I see an aging car (well-maintained, mind you, but it's a 2011), house repairs, and such. Our situation has an additional layer in that we are a late-in-life marriage, we keep separate accounts, the house is his as is the responsibility of major maintenance and taxes, and we both came into this relationship with eyes open as to my health (incurable cancer) impacting both the current finances and what the future would look like for my husband after my death. (Hmmn, having written all this, I think I have a blog post in the not-to-distant future...) It's like your reference about the unknown weighing you down. I think the more you put into place that works for YOU (because that is what is important here--what works for you), the more you may be able to move the unknown to the side, knowing it IS there, but it doesn't have as much weight. Hugs, Sam!
ReplyDeleteDepending on how I travel my car easily should go another 13-15 years. Still, it will eventually need replacement. I miss my husband's ability to help talk me off the ledge when stress about the unknown gets to much. Hugs to you as you navigate your life. You're in my prayers.
DeleteI missed commenting on your political blog and just want o add, it was heartening to read so many of yur readers loved it , as I did. Thank you very much.
ReplyDeleteI respect the right to different opinions but agree it felt good to have support.
DeleteOnce you plan, you prepare for scenarios you cannot even predict. Good on you!
ReplyDeleteThat's my hope. I've got a few pieces of a puzzle still to figure out.
DeleteWe're in a different life phase, but here's how we're currently handling things. 1) We have 529 accounts for the first two years of college. 2) We have laddered CDs that cover the next two (hopefully not three) years of college for both kids. 3) We have a large emergency fund. 4) We keep enough in savings to cover most largeish expenses. 4) We can tap into our investment account & have the money for a bigger expenses in a week or so. Our major priorities are ensuring we have enough for college, although I do mark how much we need for property & income tax each year. While I keep that money "mixed in" with regular savings (to avoid needing lots of accounts), at the bottom of my spreadsheet listing the savings total, I have a few rows showing what the money is going for, and then a net at the bottom of actual savings (not needed for taxes, upcoming expenses, etc). We have *very* bumpy spendy at this time due to college and other things, so this is what is working for us. (Hawaii Planner)
ReplyDeleteWe moved through many stages. I hope you don't experience my stage for decades and decades. It's grueling alone when not the plan.
DeleteDaddy lived to 93 yrs old, he always put a "car payment" in savings and tried to make sure he had at least 30% (yes he bickered the price down)for a down payment. Since we just spent $4200 on a repair and the other truck is not able to be driven far... car payment in savings is a big one right now but I also pointed out to Hubby we could be making a payment of over $1000 a month when you add up the repair bills for his 2015 F-350
ReplyDeleteWe did that back when we had car payments, and once paid off, kept paying ourselves until we eventually got ahead.
DeleteYour budgeting is very similar to mine. I have bucket accounts at an online bank (in addition to my regular use back) that are sinking funds for emergency, house maintenance/ insurance/taxes, etc. My car is a 2018, so I hope some good years left on it still, but I'm already saving for the eventual replacement. I keep 12 months of income in short term CDs. In general I feel pretty secure, as long as SS isn't targeted too badly. Who knows about that. I'm not taking it yet, waiting till I'm full SS age.
ReplyDeleteI made it sound like each fund is a separate account but it's more one account with tracked expense lines. I won't take SS for myself until full retirement age or even 3 years later at 70. I'll draw on my husband's as a widow when I turn 60.
DeleteYour car is two-years-old and 240,000 miles as you stated earlier. You expect it to last 13-15 years. First of all, I wonder how you put so many miles on it in two years. I would be wary of it lasting that long.
ReplyDeleteMaybe typo?
DeleteMay have meant 24,000?
Good catch-one too many 0's.
DeleteI kinda budget the way you do too - and it works doesn't it! Anything that doesn't get taken out monthly has a separate "account" (read envelope) for that, such as winter tyres, the gardener, Christmas shopping etc. I also have two separate accounts for savings (one which will presumably pay cash for a new car when this one conks) and another for travel. I think it's soooo important not to have any credit/loans when you retire (if that's possible). You're on the right track and absolutely know what you're doing!
ReplyDeleteI wouldn't be retiring if I had debt. Personally, I wouldn't be comfortable knowing that's over my head while drawing down on my savings.
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