Savings strategies that actually work
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It's always fun to get a little philosophical when you talk about budgeting because it is like at the heart of all money questions, I think.
I agree. I feel we concentrate too much on the dollars and we forget there's a human being with feelings behind it.
You're listening to Life Kit. I'm Mariel Cigarra. And that was certified financial planner Tanya P. Brown. When Tanya gives financial advice, she often comes back to an acronym. SWAN, S-W-A-N, meaning sleep well at night. Because she says the best money choice isn't necessarily the one that optimizes your savings or your future earning potential. It's the decision that makes you feel safe, and it's the one that's aligned with your values. Keep that in mind as we have this conversation about savings buckets. The idea with savings buckets is that you separate your savings into distinct categories, prioritize between them, and set up rules to decide when you tap into each one. Doing this can help you stay motivated and stay on track with your money goals.
By the way, Tanya is also a job exit strategist.
I literally say my job is to help people quit theirs. So helping people create a financial exit strategy to quit corporate and go solo.
And savings buckets are a big part of that. Now, when I talk about savings, I don't just mean the money you put into a traditional bank account. Investment accounts are a form of savings, too. So are health care spending accounts. And it can be hard to know how to prioritize between those. A quick tip on that.
I would actually say prioritize the things that are likely to happen. Those to me are the priority because those are what bust everybody's budgets and those are the things that are going to happen.
That bucket is what a lot of financial experts call a sinking fund. It's meant for upcoming expenses that you're expecting. And it's different from your emergency savings fund because an emergency, you generally can't anticipate.
Those are, you have to fly out because the family is ill. You have an over and above average incident that happens. And that's where the emergency comes in. So I oftentimes say emergencies are for the things you pray never happen.
We'll have more on sinking funds, emergency funds and other types of savings after the break.
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Tanya, I wonder why have a sinking fund at all, right? Like, can't you just try to cover whatever short-term expenses come up with your paycheck?
With the short-term savings, let's just say you want to save for Christmas. Yes, you can just wait till Christmas and spend the money, but then you always are finding yourself in a panic spending the whole thousand, whereas if you just set aside $100,000 every month – It's smooth. So think of short-term savings as smoothing what feels like an emergency or a panic moment. So if you know this comes up regularly, you can simply have a line item in your budget. A hundred of that thousand dollars may go towards a Christmas budget. A hundred of that line item may go towards a future repair or future dental if you don't have that already covered inside of a flexible spending account or health care savings account.
So the goal of short term is to turn the panic into something that is automated and something smooth.
Do you recommend that people put their sinking fund and their emergency fund into separate bank accounts?
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