Resolutionize Your Finances: Savings

by Kay Lynn

This is the second article in a four part series on Resolutionizing your Finances. Visit Other Better Living Network sites focusing on other areas of your life.  Part 1 was on budgeting.

IMG_6253Before I started putting every dollar to work my savings strategy was very short term.  I only saved money for specific purposes such as an upcoming vacation or a down payment on a new car.  The only exception was enrolling in the 401K plan at work which was easy because I never saw the money.

This article is not going to tell you where to stash your money or who has the best interest rate.  Those are great topics, but first you need to know why you should save.

Emergency Fund Savings

If you had to replace your washer or dryer this week, how would you pay for it?  If you said credit card or didn’t know then you need an emergency fund.  The emergency fund is for handling those unexpected expenses without going into debt.

Eventually, most people will want to save 6-12 months of expenses in their emergency fund. That’s once you have your other financial ducks in a row.  First, establish a $500 to $2,000 in savings that will cover the majority of unplanned bills.

Sinking Fund Savings

It shouldn’t come as a surprise that cars will need maintenance and the home insurance bill will come every year.  These types of irregular expenses should be planned for in the budget.

We pay property taxes twice a year so every month budget for 1/6th of that bill and put it in a savings account.  This is called a sinking fund.  When the bill comes, I transfer the amount into the checking account and pay it.

When it comes to car repairs, I consider this sinking fund fully funded whenever the amount gets to $1,000.  My car is new enough that it would be unlikely to need costly repairs.

Short-Term Savings

Want to go to Europe in two years?  Or maybe you want to put a down payment on a home of your own.  Unless you are independently wealthy, these types of goals require saving for a few years.

Whatever your goal, you need to budget for it and stash that money away.  Typically, short term savings are kept liquid so don’t invest it in stocks or CDs.

Long-Term Savings

If you’re wondering what events are left to save for, it’s the biggies in life.  College educations, weddings and retirement to name a few.  When you start saving for them they should be so far down the road that investing the money is the best path.

It might motivate you not to cash these savings in by having penalties for withdrawing early as with retirement accounts, CDs and bonds.  Plus your earnings over time should be better than a standard savings account.


I have all of these types of funds even if they’re not as “funded” as I would prefer.  The important thing is to get started.  It’s amazing how much stress is removed when you plan for the unplanned!

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N.W.Journey January 10, 2011 at 8:39 am

Good mention on the ‘Sinking Fund Savings’! This is overlooked a lot and is such a reality for everyone. I put aside monthly just for this, and sometimes I wonder ‘why am I doing this?’, but with car repairs, you never know when it’s going to be a $120 or a $1200 problem, so I am always happy I have it!

Kay Lynn January 10, 2011 at 7:57 pm

NW Journey, you have to expect the unplanned. We have a leak in the drain of our upstairs balcony and are waiting to hear from the HOA if it’s their responsbility or ours. I sure hope it’s not ours!

Andrea January 10, 2011 at 3:09 pm

I always lumped savings as savings – nice to have a different tag for how it should be applied.

I liked this article so much I stumbled it!

Sandy @ yesiamcheap January 10, 2011 at 3:36 pm

Gosh, I’m trying to squeeze $250 a month into any kind of savings before I can even begin to think about allocating them for specific things.

Moneycone January 10, 2011 at 4:24 pm

Put your savings on an automatic mode – move a certain percentage out of your pay into a savings account just like a 401K.

Importance of emergency funds cannot be stressed enough.

Buck January 10, 2011 at 9:32 pm

I thought of savings as savings, too. Or big, big events like buying a house, weddings, having kids, etc. Going to work on breaking out my sinking fund and emergency funds. Thanks. 🙂

Kay Lynn January 14, 2011 at 5:03 am

Buck, I keep my emergency fund separate from my sinking funds and use a spreadsheet to track what categories are funded and the amounts for the sinking funds account.

LifeAndMyFinances January 11, 2011 at 3:59 am

Good budgeting tips! i think it is fairly common for an individual to pay and emergency with their credit card. It’s just how they’ve witnessed other people handle emergencies. I know I did it once! But now, we have an emergency fund and will never need that card again. It really feels great!

Jane Sanders January 11, 2011 at 10:57 am

This is a great breakdown of the different reasons people need to save. It’s too bad most people can get past the short-term category. I guess it’s a lot easier to save when the goal is something fun like a trip to Europe, rather than something nebulous like being able to retire in 20 years.

Little House January 11, 2011 at 10:57 am

These are good starting points for building up savings. I currently am working on my 3 savings funds – large purchases, ER, and wealth building (similar to the accounts you pointed out.) Being able to pay for large purchases or emergencies in cash is so much more responsible than paying for them with credit!

Kay Lynn January 14, 2011 at 5:06 am

@Life and My Finances, it does feel to know that you don’t need a credit card to cover an unexpected cost. Congrats!

@Jane, Unfortunately that is the truth for a lot of people. It’s hard to think long term when tomorrow is staring me in the face.

@ Little House, I like the term wealth building as it sounds so positive.

Jackie January 11, 2011 at 11:43 am

I’m with you on having a variety of earmarks for savings. Savings just for the sake of savings can leave you feeling unmotivated.

Everyday Tips January 11, 2011 at 12:46 pm

I feel so much better since I started separate accounts at Smarty Pig for Vacation, Taxes, and summer camps. I love just have money waiting for me in those accounts for when the bills come. Just better for my mental health I guess. I know that each month, money will come out of our checking account and will be allocated to those items, so I must plan for them and not spend that money instead.

Great plan Kay Lynn!

Kay Lynn January 14, 2011 at 5:18 am

@Jackie, If I didn’t put a label to my savings, it wouldn’t amount to much. I’m one of those people who would say, “Look I have all this money in savings” and then go spend it.

@ Everyday Tips, you sound just like me. One of the things I want to try this year is a Smarty Pig account. Thanks for the reminder.

Nikki January 12, 2011 at 10:37 am

Kay-Love the idea of a sinking fund savings! I’ve never heard of that before. Thanks for writing such an informative article!

krantcents January 12, 2011 at 2:45 pm

Whatever works for the individual is what is right. When I owned apartment buildings I had a reserve account for repairs because in an apartment building the repair can be significant. I

Kay Lynn January 14, 2011 at 5:29 am

@ Nikki, glad you enjoyed the article. The sinking fund has really helped me plan for irregular expenses.

@KrantCents, good point about reserves. Our HOA has a reserve with quite a bit of cash in it to cover large unexpected costs. We’ve been making lots of roof repairs this year with all the rain and 20+ old homes.

Tiffany January 13, 2011 at 8:14 am

Thanks for the good explanation of these. We’ve got some of these types of funds, but should be more intentional about them all.

Crystal & Co. January 15, 2011 at 11:03 am

Bucksome- I think my husband loves you! He is the savvy saver here!

Kay Lynn January 16, 2011 at 5:45 am

@ Tiffany, that’s great that you’re already set up with the various saving funds. For me, it’s a case of too late is better is never.

@ Crystal, that’s great that one of you is a good saver. My husband is far better than I and is wondering what took me so long, LOL!

debt management October 15, 2011 at 1:25 pm

I always lumped savings as savings – nice to have a different tag for how it should be applied.

I liked this article so much I stumbled it!

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