3 Ways to Keep from Wrecking Your Budget

Even though we’ve been working together to manage our money for years, we still have hiccups with our budget. Unexpected expenses pop up. Or even, as has happened a couple of times, our debit card info gets swiped from a card reader at a gas station, and we find ourselves navigating a fraud claim. All of us know that things can and do happen, and if you’re brand new to budgeting and managing your money, you may feel defeated the moment you hit a stumbling block. But these three lines of defense will prepare you for whatever life throws your way.

1. Sinking Funds

I’ve been preaching the Sinking Fund gospel forever. And if you’ve read my book, you know how I firmly believe that Sinking Funds are one of the best ways to keep unexpected expenses from destroying your finances. A Sinking Fund is typically a separate bank account where you set aside money for a planned specific purchase in the future. For us, we have Sinking Funds for:

Christmas
Pet expenses
Vacations
Kid expenses (like extracurriculars)
Medical (we don’t have traditional health insurance)
Home maintenance
Auto maintenance

These Sinking Funds keep simple things like an oil change from completely wrecking our finances. The point of Sinking Funds is to set aside money for those expenses that, when they pop up, derail all your plans. I mean, if you’re a fur mom, you know that your sweet pet is going to have to go to the vet at least once a year for their shots. So it really shouldn’t be a surprise when they come due for their visit. Same with Christmas. Christmas happens on the same day of every year – it’s not a surprise, but I can’t tell you how many Christmases we found ourselves going into debt for just because we had failed to plan accordingly.

So if you’d like to keep your budget in check, I highly recommend utilizing this first line of defense. It’ll keep all those silly expenses that you should have anticipated from wrecking your budget.

2. Slush Fund, a.k.a. Budget Buffer

The Slush Fund as my husband and I call it, is really just a budget buffer. It’s extra money that we don’t really have planned for anything specific like we do with our Sinking Funds but it is there as a “just in case” fund. For us, this account is our Way to Save account from Wells Fargo (which they won’t be offering this for much longer) and is how this Slush Fund started. That whole “keep the change” fund helped us build up a budget buffer to keep my husband’s overspending or even my over saving in check. We don’t keep much money in this account as it’s just a buffer and meant to protect us in silly “oops” moments. It’s not meant to protect us from really crazy high expenses. It’s just an account that helps to keep our human nature in check and prevent us from completely wrecking our finances.

This is just a small amount of money that you basically pretend doesn’t exist unless you need it (think like less than $300). This second line of defense will keep you protected from yourself and that Chic-fil-a run you just couldn’t stop yourself from.

3. Emergency Fund

The last line of defense but the one that you should spend the money and time focusing on building. This one is the most important as it’s your safety net for life. Life happens fast. Again, if you’ve read my book, you know that my husband was involved in a work-related accident that could have cost him his life (thankfully, it didn’t), but it did cost us our entirely, very, very small savings at the time. You cannot predict the future. You do not know when life will jump up and smack you in the face. But I can promise you this – it will jump up and hit you when you least expect it. That’s how life works. And your Emergency Fund is your last line of defense when facing those hardships.

My advice to anyone trying to navigate managing their money for the first time is to start by setting up a Starter Emergency Fund. Your Starter Emergency Fund should be one month’s worth of living expenses. So if you haven’t already, go back through all of your spending from last month. Pull up your bank statements from your checking account and credit cards – wherever you spend money from. Then go through the expenses, group together like expenses, and tally them up. This will give you an idea of how much you spend on groceries, utilities, rent/mortgage, insurance, etc. And you can use that number of how much you spent on the necessities (eating out isn’t a necessity, but groceries are) for your Starter Emergency Fund number. Then work as aggressively as possible for the next three months to save that number.

Important to Remember…

Your Emergency Fund is more important than all your other lines of defense, so prioritize saving that Starter Emergency Fund before working on the other lines of defense. Remember that this is your last line of defense, so it needs to be created first. Once you have your Starter Emergency Fund, choose the most pressing Sinking Fund and start building that one. Pick a minimum amount for that account – once you’ve saved it up, then stop contributing to that Sinking Fund and go back to your Starter Emergency Fund. Build up your Starter Emergency Fund to have two months’ worth of living expenses saved. Once you’ve done that, start building up your next Sinking Fund. Rinse and Repeat.

Your Slush Fund or budget buffer can be done at any time – stick $5 or $10 there every paycheck. Again, it’s not meant to be a lot of money. It’s just there to protect you from mistakes. The goal with it is to make sure that there’s something – anything from each paycheck that can cover silly small expenses in an instant.