384. The Simple System That Ends Money Panic

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Most financial “emergencies” aren’t emergencies at all. They’re predictable expenses we didn’t plan for.

In this episode, Amber breaks down what sinking funds are, how they work, and how to set them up step by step. She also shares how she’s teaching her 9-year-old granddaughter about saving for Disney Paris and why involving your kids can completely change your family’s money mindset.

If you’re tired of reacting to expenses and want to feel confident and prepared instead, this episode is for you.

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Episode Transcript

Amber (00:00):
What if I told you most financial emergencies aren't

(00:03):
actual emergencies at all?
They're just expenses you didn'tplan for.
And the difference betweenconstant stress and total
confidence with your money, onesimple system.
Today I'm going to be talkingabout it.

Announcer (00:23):
You're listening to the Debt Free Dad podcast with
Brad Nelson.
Brad and his co-hostsexperienced the anxiety of
living paycheck to paycheckbefore learning the fundamentals
of financial success.
They are now on a mission toempower regular people to pay
off their debt for good andenjoy happier, less stressful
lives.
Keep listening for inspirationalinterviews, tips, tricks, and

(00:46):
practical advice to gainfinancial freedom.

Amber (00:51):
Thank you for listening to the Dead Free Dev Podcast,
where we help everyday, normalpeople like you take control of
your finances and live ahappier, less stressful life.
I'm Amber, your host for today'sepisode.
And my husband and I saved andpaid off over$54,000 in just 20
months.
And we've been living debt-freeoutside of our mortgage since

(01:13):
2018.
After listening to this episode,if you're ready to take things
to the next level, if you'resick of living paycheck to
paycheck, if you want to reducefinancial stress in your life,
build a savings that's there forall of life's emergencies, and
finally pay off your annoyingdebt for good.

(01:34):
Well, we've created anincredible free resource for you
here at Dev Free Dad.
And I'll be sharing more detailsat the end of this episode.
All right.
So what is that one simplesystem that I just mentioned?
Today we're talking all aboutsinking funds, what they are,
how they work, how to set themup, and how to involve your kids

(01:58):
if you have them, so your wholefamily is on the same page.
Because this is one of the mostpractical tools for you to stop
living in reaction mode when itcomes to your finances.
And once you understand it, it'sactually pretty simple.
So let's break it down.
First, what is a sinking fund?

(02:19):
A sinking fund is money you setaside a little at a time for an
expense you know is cominglater.
That's it.
It's not complicated, it's notsuper fancy, it's just
intentional planning.

And here's the key idea (02:35):
if it's predictable, it's not an
emergency.
Car repairs aren't shocking.
Christmas doesn't just sneak upon you.
Back to school happens everysingle year, you're ready.
Birthdays also every singleyear.

(02:56):
But when we don't plan for them,they feel like emergencies.
And when they feel likeemergencies, what do most people
do?
They swipe a credit card.
That's how the cycle continues.
So the goal of a sinking fund isto break that cycle instead of

(03:18):
reacting, you're prepared.
Step one, identify what needs tobe a sinking fund.
I want you to think about thelast 12 months.
What expenses popped up thatstressed you out?
Was it car repairs, vet bills,Christmas, vacation, maybe kids'

(03:40):
sporting events, home repairs,insurance deductibles.
If it happens yearly orsemi-annually, it needs a fund.
Most families only budgetmonthly bills, groceries, that
kind of thing, right?
But real life isn't just bills.

(04:01):
Real life includes the stuffthat comes up.
If you don't give those expensesa line in your plan, they'll
take over your plan later.
Number two, do the mathbackwards.
Here's where it becomesempowering.
Let's say Christmas costs you$1,200.

(04:24):
If you start in January, that's$100 per month.
Now, if you wait until July,that's now$200 per month.
Same expense, very differentstress level.
Take the total amount, divide itby the number of months until
you need it.
That's your monthly sinkingfund.

(04:44):
This isn't about saving hugeamounts at once, it's about
consistency.
Small steady deposits changeeverything.
Step number three, decidingwhere to keep your money.

Now, people always ask this: where do I keep my sinking (04:56):
undefined
funds?
Do I need a separate account formy sinking fund?
You have options.
You can use one savings accountand just track what every dollar
is for.
You can use multiple savingsaccounts like I do.
I like it kind of separated.

(05:17):
There are some bank accountslike Allied Bank in the United
States that allows you to havebuckets.
Or you could just go the oldschool way and have some cash
envelopes tucked away at home.
Whatever method you use, itdoesn't matter.
Use what's best for you.
What matters is that the moneyis separate from your regular

(05:39):
spending.
So you don't want this in yourregular daily checking account.
Because if it sits in thatchecking account, it will get
spent.
So those are the simple threesteps to start your sinking
funds.
And why sinking funds changeeverything?
The car breaks down, instead ofa panic, you transfer the money

(06:02):
and pay this bill.
Christmas shows up instead ofdebt, you have the money to
spend for your allottedChristmas plans.
Your kids need new cleats.
Money's in there for the kids'events.
The emotional shift isincredibly powerful.
You go from reacting to beingprepared, and that builds

(06:26):
confidence.
Now let's bring in your kids fora minute.
If you have kids, this is one ofthe best teaching tools that you
have.
Kids don't learn money byaccident, they learn by watching
you.
If they see a card being swipedand stressful conversations,
that becomes normal to them.
But if they see planning andprogress, that becomes normal to

(06:51):
them.
Now, here's a fun thing that weare doing with our
granddaughter.
And we told her that when sheturned 10, we were going to take
her to Disney.
And she just turned nine.
So now we're really getting intothose planning stages.
And we created a chart for herto color in every time we saved
money for the trip.

(07:12):
And we said we need this amountof money.
And we're going to tell you howmuch we're saving.
And every time we save somemoney to go towards that, you
get to color in one of thepictures.
And then we also made her aspending money one.
So she'll get money sometimesfor birthdays, different events,
she'll get change or whatever.
And she has a piggy bank.

(07:32):
So she now has her own spendingmoney chart to color in as well.
And we were recently at anouting and she wanted to go to
the gift shop and she wanted tobuy something.
And I told her, I said, we'renot going to buy anything today
because we plan to come to thisouting.

(07:53):
We paid to come and we're notgoing to buy things today
because we already spent ourmoney on paying to come and
we're saving money for Parisbecause we're going to Disney
Paris.
So this is like a big trip.
She kind of, you know, grumbledor whatever.
And we said, remember, we toldyou if we spend our money on
something else, we're going tohave less for our trip.

(08:15):
And she grumbled and groaned.
And I left the gift shop and Ileft her with my husband.
And honestly, I was fullyexpecting my husband to come out
with something for her.
And they didn't, I guess theyhad a conversation and she said
how awful G Ma was.
And they had this conversationand they left.
So we left and we dropped heroff at home.
And then the following week, wehad picked her up again.

(08:37):
And we were talking about somemoney that she had gotten from
her great-grandfather.
And what do you want to do withit?
And yada yada.
And we said, like, you know, andshe goes, Well, I'm going to
save it all.
I said, okay.
And then something else poppedup.
And we said, Well, you havemoney for that if you wanted to
take some of that money fromyour great-grandfather and save
the rest.
And she goes, Well, no, becausethen I won't have as much for

(09:01):
Paris.
You guys, this happened withinlike two weeks span.
So she's already clicking intoif we spend this money right
now, we won't have as much forour trip.
And she's already thinking aboutthe things that she's going to
buy when she's in Paris and thethings that she's going to do

(09:21):
when she's at Disney.
And she's kind of already doingthis.
So she's nine.
And this is a great tool for youto get your kids involved.
So pick one family goal.
Maybe it's a vacation like us,maybe it's a themed weekend, a
weekend getaway, something funand add that visualization to

(09:41):
it.
You could have charts.
We actually have, I'll link themin the show notes.
We have free savings charts thatyou can color in.
So you can involve your kids inthese.
You could use them for yourself,car savings, that kind of thing.
They're actually really cool.
So make sure you grab that atthe top of the show notes.
Make it visual and print thepicture, put it on the fridge,

(10:01):
make it a thermometer, whateveryou want to do.
And I personally did this whenwe were saving for our house
after we became debt-free.
We were saving for our housedown payment and I had like this
big chart and it just made itmore fun.
So every time that you add moneyto that sinking fund, you're
going to update the chart andthey're going to see the
progress, right?

(10:22):
And if you, you know, maybe sayno to McDonald's and you say no,
not today, we're not going to doMcDonald's today.
And it's not no all the time,right?
It might be no now, but we'll doit later.
If you saved the$20 onMcDonald's or whatever it is in
your area wherever you live, youcan maybe say, okay, well, we're
going to now add that to thesinking fund because we we

(10:43):
didn't spend it, or we didn'tspend as much on our takeout
budget and we actually have someleft over.
So now we're going to add that.
And when they start to see thethings start to happen and then
the fun that they have later on,it's going to make so much more
sense to them.
And it's less about saying,like, we can't afford it.
It's more about saying, like, weare choosing not to get takeout

(11:06):
today because we want to have anamazing trip in a few months.
And this is really going toteach them some delayed
gratification.
And this is a skill that they'regoing to take forward into their
entire financial future.
So, how do you start withoutoverwhelming yourself?
You don't want to walk away fromthis episode and create 15

(11:27):
sinking funds.
Start with one, that one thatstresses you out the most.
All right.
Whatever stresses you out themost.
Or it could be your nextupcoming thing.
Maybe you know you need tiresfor your car and you haven't
saved anything yet.
The next season's coming up.
Like we need to make sure we getthose tires.

(11:48):
Set up an automatic transfer.
Or unless you're doing cashenvelopes, that's fine too.
Even if it's a small amount, allright, progress builds momentum.
So set this up and put it in aplace where it's out of sight,
out of mind.
When it happens at the same timeas your paycheck comes in, you

(12:09):
really don't necessarily see itand it doesn't hurt as much,
right?
So I love the automatictransfers.
So let's recap this.
All right.
A sinking fund is money that youset aside monthly for
predictable expenses.
This is different from youremergency fund, right?
The emergency fund is foremergencies that happen that you

(12:29):
know are going to happen, butyou never know what it's going
to be, right?
Sinking fund is for predictableexpenses, Christmas, car
repairs, that kind of thing.
Step one is identify theexpenses that happen every
single year regularly.
Step two, take the total amountand divide it by the amount of

(12:49):
months you have until you needit.
Step three, keep the moneyseparate from your daily
spending.
And if you have kids, get theminvolved.
Make it visual, make itconsistent, make it normal.
Because prepared families don'tpanic.
They plan.
Now, if you're sitting therethinking, okay, I'm ready.

(13:12):
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(13:32):
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Thanks for hanging out with metoday.
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