Sinking Funds

No Good Reason to Save & Invest? Do It Anyway!

Roughly 11 months ago, someone asked me to share my best tip for success with money. It took me less than a minute to say “automatic transfers”. Honestly, I really think that automating your finances is the cornerstone of mastering your personal finances.

Automation is beautiful because it removes the decision from your hands. More importantly, an automatic transfer removes the temptation to spend the money. If you’re paid bi-weekly like I am, you don’t have to waste time every fortnight asking yourself if you should set aside money, how much money should be set aside, whether to send that money to your emergency fund, etc… Each of those questions is an opportunity for you to spend instead of save, or to save less than you should, or to neglect one of the most important tools in your personal finance arsenal.

The automatic transfer saves you from yourself. Once it’s in place, you don’t have to think about it again.

I spend a lot of time here telling you to pursue your dreams and to determine your priorities so you can make those dreams come true.

Some of you might not know what your dreams are just yet, or you’re still trying to figure out your priorities. That’s fine. As a matter of fact, that’s more than fine. It’s completely normal. Life changes, so your priorities will change too.

Those changes don’t really matter when it comes to whether or not to automate your money. See, when you do figure out what you want from your life, you’re going to be very happy that there’s already some money set aside somewhere. Set up your automatic transfer today and just let the money accumulate while you’re figuring out what you want.

If you can, start with 20% of your take-home pay. That’s a decent chunk. If it’s just being wasted on frivolities and feckidoos, then it’ll serve you better in an emergency account, a sinking fund, an investment account, or a retirement account. I would suggest dividing your chosen amount into thirds:

one third to your emergency fund until you have 6 months of income set aside;
one third to your retirement account until you’ve maxed out your TFSA and your RRSP; and
one third to short-term goals like a course you want to take, or some travel, or a hobby that you love.

Portion #1 – Your Emergency Fund

It’s going to take a minute or two to build up your emergency fund. That’s okay. Just start! When the emergency comes, whatever amount you have will help. Trust me when I say that no one in the history of the world has ever regretted having money set aside during an emergency.

Remember what the emergency fund is for. It’s money meant for your survival. If you lose your job, then the emergency fund has to pay for your shelter, your food, your medications, and your other necessities until you get another source of income. If you have debt, your emergency fund should also be able to cover those payments. After all, one does not need to have a vehicle repossessed nor dings to one’s credit rating while one is hunting for a job. (Some jobs care about your credit rating.)

It should be obvious but I’ll say it anyway. The fewer things that your emergency fund has to cover, the smaller it can be. Get out of debt and you won’t have to worry about how your creditors will be paid should you become temporarily parted from an income.

When money goes into your emergency fund, leave it alone. This is the money that is meant to replace your income should you lose your job. It’s not meant to pay for anything else.

While this blog is targeted at single people, I know that there’s more than a slim chance some of you will find partners and enter relationships. Relationships are another reason why everyone should have a big, juicy emergency fund. Not every relationship is meant to last. By having your own emergency fund, money will never be the reason that you stay in a relationship that is no longer good for you. Having your own money is insurance against financial abuse.

Portion #2 – The Care & Feeding of Future You

Next, you’re going to get old unless you die first. That means, there will come a point when you can’t work anymore. Before that day comes, you’ll probably reach a point where you won’t want to work anymore. You will want to have a nice, ginormous pile of retirement cash waiting for you. And if you can’t have a ginormous pile, then I’m pretty certain you’ll settle for a comfortable pile. Whatever amount you wind up with is up to you. If you save and invest $0 towards retirement, then that’s how much you’ll have at the end of your working life.

Start today. Fill your TFSA first, then your RRSP. Once those are filled, start investing in a non-registered investment account. As with your emergency fund, it’s going to take some time to maximize your contribution room unless you come into a lottery win, an insurance payout, an inheritance, or some other kind of windfall that you don’t spend on something else.

Always remember that the money in your TFSA, your RRSP, and your investment accounts must be invested for long-term growth. Yes – they’re called a Tax Free Savings Plan and a Registered Retirement Savings Plan. I get it, but I don’t care what they’re called. These accounts protect your money from being taxed, so go for growth. Invest in broadly-diversified, equity-based exchange traded funds so your money can grow exponentially through the magic of compounding.

Mutual funds are more expensive than exchange-traded funds, so try to invest in ETFs. Once you buy your ETF, don’t fiddle with it. Equity-based investments are meant to be held for a long period of time. If you think you’ll need money in the next 3 years, then set up a sinking fund to pay for whatever-it-is-you-plan-to-buy.

Portion #3 – Enjoying the Journey

Finally, you’re going to use sinking funds to pay for the things that bring you joy along your journey. Whatever extracurricular activity floats your boat probably comes with a price tag. Have a sinking fund so that you can indulge yourself. I worked with a woman who was very frugal in most areas of her life. However, she and her partner loved concerts. You better believe they had a sinking fund to pay for front row seats of their favourite performers. A young family member of mine discovered a love of travel. He just got back from his first cruise and is already saving up for his second trip to Japan. Another friend of mine attends writing retreats – money is needed for accommodation, travel, food, supplies, instructors’ fees, etc…

Life goes by very, very fast. And we spend so much of it at work, doing stuff for someone else that we probably don’t care about very much. The reality is that our society is designed to keep up endlessly stimulated. There’s very little encouragement to sit quietly and to contemplate what it is that you want, to plan for that, to save money towards making it a reality. Instead, we’re fed an endless stream of advertisements which exhort us to spend and spend and spend some more on the doodads and feckidoos that don’t exactly bring us long-lasting joy.

Part of every paycheque you earn should be spent on those things that make you happiest. Even if you don’t know what that is just yet, start saving for it. One day, you’re going to figure out what speaks to your soul and you’ll be so very happy that you have the money in place to acquire it. Maybe you want to take a culinary tour in Italy? Perhaps you like to make pottery? Maybe your sports club competes internationally and you need the funds to travel?

Whatever it is that satisfies your soul, make sure that you’re setting some money aside to do some of the things that make your life what you want it to be.

So that’s it. Even if you think that you have no reason to save and invest right now, I want you to know that you’re wrong. The fact is that you simply haven’t figure out the reason. You might not know what your priorities are, but you will one day. The fact that you haven’t fully fleshed out your dreams shouldn’t mean that you delay accumulating the money needed to make them come true. Set up your automatic transfer today then work on getting everything else sorted out.

Future You will thank you.

This is the Greatest Way to Use Credit Cards!

The greatest way to use credit cards comes down to 2 simple steps.

Only credit cards when you have cash in the bank to pay the balance.
Pay your credit card balance off in full every single month.

In the interests of transparency, I will admit that I use my credit card all the time. Gas? Groceries? Travel? Clothing? Repairs? Streaming services? Subscriptions? Theatre tickets? Birthday presents? Electronics?

Yes, yes, yes! I tap my credit card for all of it. I love earning points with my card because points translate into dollars at the grocery store. A few times a year, a big grocery haul can be purchased with points. This is a great thing for my cash flow. Other people I know prefer to swipe for travel rewards. They’ve got large families so travel rewards work to ensure no one family member need be left behind. And I know there are people who simply love getting cash-back. If I weren’t getting “free” groceries, I would definitely be using a cash-back card.

Also in the interest of transparency, I pay off my credit card balance every single month. I have a very simple method for doing so. After I make a purchase on my credit card, I go to my chequing account and send a payment equivalent the purchase amount to my credit card.

I rely on the pay-as-you-go method to keep my credit card balance at $0. Personally, I prefer to pay off the charges right away, instead of waiting to get my statement at the end of the billing period. Making multiple payments throughout the month ensures that I don’t “accidentally” spend the money in my chequing account on something else. By paying the charges as I incur them, I’m not under the gun to come up with a large amount once a month to pay off the full statement balance. Also, paying my credit charges as they arise is a pain the butt. If I don’t want to experience the pain, then I don’t spend.

For those larger-than-normal purchases that crop up in life, I rely on my sinking funds. I don’t swipe my card without having the money set aside already. For example, I replaced my computer this week. I knew a new computer would be a 4-figure hit to my wallet, so I’ve been saving for this purchase for the past 6 months. When I went to buy it, it was no big deal to use my credit card. The money for this expense is already sitting in the appropriate sinking fund. All I have to do now is simply transfer the money over to my chequing account and send a payment to my credit card. Easy-peasy-lemon-squeezy!

By following these two rules, I have discovered the greatest way to use credit cards. I never pay interest. My credit score remains high. I stay out of revolving debt since my credit card balance is always at $0. And I get to collect lots of points that can be used to buy anything I want at my preferred grocery store.

If there’s a better way to use credit cards, please do share with the class.

And now, I Replenish the Sinking Fund!

Last month, I went on my first post-pandemic overseas trip. It wasn’t cheap. However, travel is one of my spending priorities so I have a sinking fund to pay for it.

It was my first trip to the Netherlands, with a very short stop in Belgium. I traveled with a dear friend of long acquaintance, who had suggested this trip the fall of last year. After months of blue-sky ideas, we settled on a river cruise since we’d both wanted to do one. And that river cruise was followed by 3 days in Amsterdam. The trip was amazing: canal tours, chocolate-making, stroopwafels, the Red Light District, Keukenhof Gardens! There simply wasn’t enough time to do everything that was on offer in the amazing city that is Amsterdam. Trust me when I say that we made the most of our available time.

First things first. You should know is that I spent every nickel of my travel sinking account:

I used some of the money to upgrade my airline seat, and those extra 4 inches of room were well worth the splurge. (Shout-out to another dear friend who’d made the suggestion to upgrade!)
Purchasing an all-inclusive tourist app prior to leaving home was a fabulous use of funds! That app allowed for free transportation on buses, trams, and the metro within the city. It also gave us free entry to many cool museums and various other tourist spots.
I also had the funds to book a more expensive hotel very close to all the things we wanted to see and do. Had we stayed elsewhere, precious time would’ve been wasted on commuting from one location to another. As it was, we were able to walk to almost all the places on our itinerary. The spectacular Vondelpark was a stone’s throw from our accommocations and the stunning Rijkmuseum was only a 10-minute walk away.
During our river cruise, we realized that the Hague was only an hour away from Amsterdam by train so, without any consideration as to cost, we made a last minute decision to visit the city of Peace and Justice too.
My souvenir knapsack came back stuffed with chocolates, magnets, tulip bulbs, cheese, stroopwafels, and books.

My travel sinking fund allowed me to say “Yes!” to everything I wanted to do, eat, taste, see, and buy. Again, I spent every single nickel of that fund on this trip… And I felt absolutely no guilt in doing so! The money was earmarked for this purpose. I spend freely when I travel because there’s no guarantee that I will ever pass that way again. I don’t want to come home with any regrets or thinking “I should have <insert missed opportunity here to do what I wanted> while I was there.”

Looking back, I can say that this was one of the very best trips that I’ve ever taken.

So, now that I’m home, it’s time to replenish the travel sinking fund. I want to go somewhere new in 2025, and I don’t want to come home with debt. Where I want to go hasn’t yet been decided, but I’m thinking that I’d like to travel in April or May of next year. Destination is very important, but there’s a high chance that I’ll change my mind about what I want to do next year. Scotland had been on the list for 2020, but those plans were destroyed when the world shut down. I haven’t been to Asia yet so it might be nice to go there. Japan has always intrigued me, and I’ve heard many wonderful things about Vietnam. There’s also this culinary course combined with local tours that’s also available in regions of Italy that I haven’t visited yet… So many options!

Determining where I want to go isn’t the main driver here. There’s a good chance that the destination will change a few times. Nope, my first task is to figure out how much to save from each paycheque going forward. If I save too little, then I can’t do my 2025 trip the way I want to without incurring credit card debt. That’s a no-go for me. Literally! I’d rather stay home that pay interest to a credit card company for my trip.

And if I save too much for travel, then my other financial priorities will be short-changed. I don’t want to do that either.

First things first, I’ve considered the size of my paycheque and I’ve figured out how it has to be allocated amongst all of my financial priorities. Long-time readers will know that I have sinking funds for property taxes and insurance premiums – the unsexy, necessary expenses of adulthood. Sadly, they take priority over travel so they have to be funded first. There are also some landscaping projects around my house that are slated for 2024. Gardening has become a hobby of mine and I want more perennials around my home. The kind of plants I want to buy are not particularly cheap, so I need to budget for them. I’m also still a fan of live theatre and those subscriptions don’t pay for themselves.

Thankfully, I’m debt-free. I managed to pay cash for my latest vehicle. Student loans and mortgage debt have been in my rearview mirror for a very long time. As such, I don’t have to have send money to creditors every month. While I use credit cards, the balances are paid in full every single month. A good portion of my former debt payments is put towards travel every time I get paid. (The rest of those payments has already been re-directed towards building my emergency fund and investing for my retirement.)

Even though I spend a lot of time talking about the future, I recognize that money is also meant to be spent to bring us some joy today. The Care and Feeding of Future You is incredibly important. That’s why you should be investing a good portion of every paycheque for long-term growth. When your paycheque stops, your investment portfolio should be ready to take over.

However, taking care of Present Day You is also a serious responsibility. You should be able to do some of the things that you really, really, really want to do now without going into monstrously expensive credit card debt to do so. And that’s why I advocate for sinking funds. Setting aside the money first means that you don’t burden yourself with debt while still getting to do what you want.

Figure out your priorities, then create sinking funds for each of them. When the money is in the fund, spend it as intended without any guilt whatsoever. When you get home, replenish your fund so that you can get down to the business of turning your next dream into a reality.

5 Simple Rules to Become a Millionaire

This week, someone asked me if I would consider writing a post about not drinking a daily coffee in order to become wealthy. I responded that I though the “daily coffee” is a red herring. By following a few simple rules up front, anyone will become a millionaire with enough time.

Rule #1 – Invest

Take 30% of net pay and invest it in well-diversified exchange traded fund. Do this every single time you get paid. If you get a raise, maintain that 30% proportion.

If you can’t start with 30% right away, then start where you can and increase the percentage by 1% every chance you get. I didn’t start at 30% right away either. However, after 30 years of investing, I’ve managed to hit a 40% savings rate. It didn’t happen overnight but it did eventually happen.

The more you can save, the faster you will hit the goal of becoming a millionaire or being financially independent. It’s important to start today.

I promise you that if you don’t invest any money today, then you will have very little of it when you need it the most later.

Rule #2 – Build an Emergency Fund

Some people recommend having 3-6 months’ worth of expenses set aside in your emergency fund. I’m a little more conservative than that. Personally, I would recommend 12 months’ worth of expenses. My personal mantra when it comes to emergency funds is as follows.

It’s better to have it and not need it, than to need it and not have it.

You know your own comfort level far better than I do. Ask yourself if you would rather have more or less money in an emergency fund?

Saving up this much money will take time, probably years. If it makes you feel any better, I’m still working on building up my emergency fund, and I’ve been tackling this project for a long time.

Rule #3 – Pay off your debt

Much like building an emergency fund, it may take some years to pay off all your debt. And I do mean “all” of it: vehicle loans, personal loans, student loans, credit cards, mortgage, etc… If you owe money, pay it off.

A mortgage may take decades to pay off. This is why I think it’s best to invest while paying down a mortgage and building your emergency fund. Should you get an inheritance, a lottery win, an insurance payout, or a huge raise/bonus at work, then maybe you can consider paying off the whole mortgage. There are a many factors to consider before this decision is made so consider it carefully and don’t make any hasty moves.

It might make more sense to invest the inheritance/lottery win/insurance payout/ raise-or-bonus in the stock market for long-term growth, then use the dividends generated to pay off your mortgage. That way, when the mortgage is gone you will still have a cash machine churning out an income for you. Check out this video for more details of this plan in action.

If you spend the inheritance/lottery win/insurance payout/ raise-or-bonus right away, then it’s gone for good.

Rule #4 – Use sinking funds

When there’s something you want to buy, save up for it first before you buy it.

Sinking funds force you to prioritize where you want your money to be spent. I believe that when you work hard for your money, it should be spend on the priorities that will make you happiest. Wasting money on the things that don’t bring you joy seems to be a poor choice. You will never get back the time and energy spent at work. Instead, you get a paycheque. It should be directed to building the life you really want because it represents your precious, precious time and energy.

I realize that our capitalist society does not encourage this way of life. The Ad Man and his trusty sidekick, the Creditor, are relentlessly exhorting everyone to buy everything they want immediately. My rule is about delayed gratification, not a popular choice for most folks.

However, if you want to become a millionaire, then it’s better to not send interest payments to creditors. It’s better that you invest that money so that you can reach millionaires status as soon as possible, if that’s what you really want.

Rule #5 – Spend your money

That’s right. After you’ve eliminated debt and you’ve funded your emergency fund, then it’s time for you to spend your money however you choose without going into debt.

Your investments are happily compounding in the background. Dividends are compounding each year on a DRIP, aka: dividend re-investment plan. You’re continuing to contribute 30% of your net pay even after paying off your debt and fully funding your emergency account. You’re saving up for everything before you buy it.

Keep investing. Stay out of debt. Maintain a fully-funded emergency fund. Rely on your sinking funds to meet your life’s goals.

If you’re doing these things, then you’re following the first 4 rules. Your day-to-day purchases will have no impact on your path to becoming a millionaire.

So spend the rest of your money however you want. Coffee? Travel? Brunch? Spa days? Pets? Hobbies? Wine club? Sporting events? Clothes? Shoes? Vehicles?

It doesn’t matter how you spend your money once the first 4 rules are being followed. Again, spend the rest of your money however you want so long as you stay out of debt.

4-Wheeled Money Pits Always Need a Sinking Fund

I don’t know if you’ve taken a look at the price of vehicles these days, but they’re not inexpensive. I’m showing my age with the next statement, but I want it to make an impression. Today, there are pick-up trucks that cost more that my first condo, which was $83,000! Unlike today’s trucks, my condo came with a bedroom, a fridge, and a nice view.

My question to you is – have you started planning for how to pay for your next 4-wheeled money pit?

Myself, I hate car payments. The idea of someone reaching into my bank account every month and taking out my money… it makes my blood boil! Nope – not happening. As far as I know, there’s still one sure-fire way to keep the finance companies’ fingers out of my pocket. It’s called paying with cash.

When I bought my last vehicle, I employed what is quickly becoming a quaint, old-fashioned idea. That idea is called paying cash. And even though it was a 5-figure amount, I don’t regret doing so. Paying cash eliminated the need for me to pay interest to a creditor. I hate debt. And I really hate paying debt on a depreciating item. It’s not like my vehicle is going to be worth more in 10 years. Not a chance! Every fifth car on the road is the same as mine, so there’s no possibility that mine will ever be coveted as a collector’s item.

My vehicle is a transportation device, pure and simple. It takes me where I want to go. That’s all it is; that’s all I need it to do. No sense paying interest for the privilege of owning it. I paid cash to acquire it. And now…

Now, I can start saving up for my next vehicle. Ideally, I won’t have to buy another one for several years. That said, the days are long but the years are short. I’m quite confident that, in the blink of an eye, it will be time to buy my next 4-wheeled money pit . When that time comes, I want to have the money set aside to pay cash again.

Today, I encourage you to put yourself in a similar situation. Figure out what it will take to pay cash for your next vehicle.

Whatever you’re driving now, I can promise that it won’t last forever. At some point, it will need to be replaced. Start a sinking fund today. Believe me when I say that shopping for the next vehicle is tad bit easier when you’re not also worried about how to pay for it. And, once you’ve bought next vehicle, you’ll probably love the fact that it didn’t put you into debt. I drove my last vehicle for 13.5 years without a car payment. Trust me – that was one of the things that I loved best about it!

If you don’t already have a sinking fund, go and open a high interest savings account right now. Pick one that doesn’t charge you any fees. You can find one at EQ Bank, if you don’t know where to look. ***

Every time you’re paid, throw a few hundred bucks into this account. Better yet, set up an automatic transfer from the account where your paycheque is deposited to your HISA. When the process is automated, you won’t be tempted to spend the money elsewhere. Technology does the transfer for you. It’s a simple way to ensure that the sinking fund actually gets funded.

If all goes well, you’ll eventually have enough to buy your next vehicle in cash. This is ideal. Think about it for a second. When you have to take on a car payment, that means added stress on your budget. You have to find several hundred dollars every month to pay your creditor or else they will take the vehicle away from you. Where do you cut? Food? Entertainment? Travel? Sports? Gym membership? Self-care? Other fun-stuff? When you pay cash, your budget doesn’t have to suffer. The money is gone – you’ve got your vehicle – debt payments aren’t stressing your budget.

Should you have to buy a vehicle before you have enough to fully pay for it in cash, then the funds that you’ve set aside will become your down payment. The larger your down payment, the smaller your monthly car payment and the less interest you’ll pay over the life of the loan. This is smaller win for your budget, but still a big one. Instead of a $850 monthly car payment, maybe you can get it down to a $300 one. Not ideal, but also not more than $10/day.

If you currently have a car payment, try to pay it off early. The sooner it’s gone, the sooner that money is yours again. Re-direct that former car payment to your sinking fund. Within a few years, you’ll have a nice chunk of change in place for when your current 4-wheeled money pit needs to be replaced.

I’ll say it again, and louder for those at the back. Pay cash for your next vehicle. Start saving for it today so that the money’s sitting there waiting for you when you need it.

*** For the record, I have an account at EQ Bank. I’m not getting compensated for recommending them in this post.

Spending Time! Use the Money in the Sinking Fund!

Hooray!!! It’s spending time! Break out the debit or credit card because we are going to use the money in the sinking fund!

One of my sinking funds – and I have many! – is dedicated towards my flower garden. I’m an amateur gardener in every sense of the word. Each year, I devote a few hours to planning what I want to buy and where I want to put it. The tail end of winter in Alberta can get mighty dreary so planning my garden is a good way to remind myself that spring is on its way. Container gardening brings me much joy. My wonky knees don’t allow me to comfortably kneel and work the ground like I see others doing. Containers raise everything up off the ground. And there are so many different styles of containers that I find it a bit overwhelming to choose. They’re not exactly perfect since planting can still be a bit hard on my back, but one of my Christmas presents last year was a gardener’s stool. I can hardly wait to use it this spring!

But I digress. My sinking fund for gardening is supposed to cover all of the following over the next few weeks:

compost, fertilizers, potting soil, and worm castings
a wide variety of annuals (petunias, marigolds, geraniums, verbena, sweet potato vine, coleus, and whatever else catches my eye while at the greenhouse)
new containers for all my annuals
new gloves, tools and hoses (if necessary)
more perennials and bulbs (lamium, hellebores, hostas, daffodils, tulips, balloon flowers)

Perennials are fabulous! They usually come back bigger and they bring their babies too. Free plants are a good thing as far as I’m concerned! My balloon flowers were transplanted 2 years ago. Last year, they did just okay and I let them go to seed. This year, I’m anxiously awaiting to see if they seeded themselves. Since they’re one of the last things to emerge in the spring, I’ve got another 5-6 weeks before I’ll have an answer to my question.

Bottom line – I’m always happy to see the return of my perennials, and I do what I can to ensure that they continue to love their space. This year, I’m finally going to implement the wisdom I’ve learned from Garden Answer and will add a new layer of compost to all my in-ground plants and containers. It’s supposed to refresh the soil since I don’t change the soil in my containers every year.

I’m just as much a fan of annuals. They have a place in my heart because they offer continuous flowers throughout the spring, summer and early fall. I’m in zone 3. For me, annuals always start small – since I’m too cheap to buy bigger plants! I don’t mind since I love watching their progress in the first 3 weeks. I’m not super-gentle when planting them, so they need a week to recover from transplant shock. Once settled and well-watered, they start to perk up by week three. Within six weeks, they’ve doubled in size and start to fill in the containers nicely. I love watching my annuals blooms! Watering them brings me a sense of peace, and takes away the stress of the day.

In another few weeks, I’ll be able hitting the greenhouses with my friends. And I won’t worry about how I’m going to pay for what I want. My sinking fund will cover the costs.

You should set up sinking funds too, if you haven’t done so already. I talk a lot about having sinking funds for the non-sexy parts of life, like vehicle insurance and property taxes. Maybe I should’ve also encouraged sinking funds for the fun parts of life too! What are your hobbies? Do you want to travel? Are you going to be buying seasons tickets to the theatre or to sporting events? Is there a new crafting skill that you want to master?

Use your sinking fund to pay for the fun aspects of your life too! I know a lady who blissfully spends her money on concerts. She never hesitates to buy the best tickets for whomever she wants to see! She loves going to concerts so saving money to do so is a priority in her budget. I know another lady who goes to writing workshops. One lady I talks about flying to another city for the day just to visit a particular restaurant. Different strokes for different folks, right? The thing they all have in common is that they identified their priorities and they use sinking funds to pay for them.

Let’s face facts. Spending money so, so, so much better when there’s no worry that it will result in debt. There’s no credit card hangover when you rely a sinking fund to pay for your priorities. When spending time rolls around, you can spend with ease knowing that you have the money to get what you want. The purpose of money is make your life better. It’s meant to alleviate stress, not to create it. Use sinking funds to buy what you truly want and to bring your dreams to life. There’s truly no down side to doing so. Happy, happy, joy, joy all around!

Sinking Funds – Making the Most of Your Money

I’ve written about sinking funds before. They’re pools of money that are meant to be filled then emptied, as many times as you want, for as many goals as you have. You prioritize what you want to accomplish then you decide how much money goes into each one. Sinking funds are to be held separately from your emergency fund, your investment account, your retirement account, and your daily chequing account. These funds are where you hold money for your short-term goals:

annual premium payments & subscriptions;
holiday spending, birthdays & celebrations;
travel;
tuition and annual fees;
house down payments;
renovations;
vehicle purchases & maintenance;
furniture purchases;
annual taxes;
RRSP & TFSA contributions.

Sinking funds allow you to save first, then spend your money. In case you were unaware, they are highly effective at keeping you out of debt while allowing you to still earn points/cash for using your credit cards. Let’s imagine that you’re planning to take a culinary tour in 2024. Dedicate a sinking fund to that expense and start saving for that trip today. When the time comes to book it, you use your credit card, collect your points, and pay off the credit card bill in full. You can enjoy your trip without wondering how you’re going to pay for it. Sinking funds are simply fantastic!

I have to confess that it took me years to set up all of my sinking funds. The truth is that you can’t save what you don’t earn. Early on in my career, I had a lot more debt and ridding myself of loan payments was top priority. The only sinking fund I could manage to fill was the one for my annual vehicle insurance and annual property taxes.

Monthly Payments Aren’t For Me!

I’ve always hated the idea of someone being able to withdraw money from my bank account every single month. I want to be the one in charge of when money leaves my bank account. The idea of a business accidentally withdrawing a payment twice and then having to fight with that organization to get my money back makes me furious and queasy. As a result, I’ve always chosen annual payments for my insurance premiums and tax payments. My first sinking funds were for those two expenses. Any other goals were funded from my bi-weekly paycheque via automatic transfers.

Once my student loans and vehicle loan were eliminated, I re-directed those payments to other sinking funds. My next big priority was travel! Every two weeks, a chunk of money went into my travel account up to a pre-determined amount. When it was time to book a trip, the money was there. It was awesome!

Did I stop setting aside that chunk of money once it was no longer going to the travel sinking fund? No! Instead, that money was re-directed towards my next highest priority until that pre-determined amount was met. In this way, my sinking funds were funded every year and I had the money set aside to pay for what I wanted.

Homeowners Need Sinking Funds.

Eventually, I moved from my first condo to a house. Woah!!! Anyone who owns a home will agree that it’s a money-pit. There’s always something to be fixed, replaced, maintained, or updated. As soon as I moved into my house, I realized that it was definitely time for a few more sinking funds dedicated to renovations and maintenance. Since being in my house, my sinking funds helped me to do the following:

renovated the basement and downstairs bathroom,
pour a new driveway, garage floor and walking paths,
have trees removed,
have landscaping work done,
change my main bathroom,
install carpet,
replace windows, eavestroughs & siding,
pour insulation;
buy new furniture & electronics;
install a new water heater & furnace;
remove a shed;
install a sprinkler system.

Believe it or not, there are still many other things that I want to do around here. If I hadn’t created my sinking funds when I first moved in, I would be neck deep in debt and stuck on a payment treadmill. Planning out my purchases in advance allowed me to plan out my money too.

It Can Take a Few Years.

For as much as I love my sinking funds, I was never able to fill all of them at the same time. I simply didn’t have enough money. There was no way my paycheque could have paid for everything all at once when I first started. As my income grew, so did the amount that I could allocate to my sinking funds.

Some funds had to be replenished every year, so they went into a dedicated account. Insurance and property taxes come to mind. They need to be paid every 365 days so I group them together in one sinking fund. It has been filled then emptied on a regular basis for the past 30 years. Once that sinking fund is filled, my money goes towards filling my other ones.

Other sinking funds have been for one-time purchases. Trust me – it’s highly doubtful that I will be cutting down the same trees more than once. The monies for one-time purchases goes into an account where the nickname could be changed as needed. “Tree Removal” would become “New Tire Fund” or “BAC Subscription” or whatever else happened to be next on the priority list.

Finally, there are the sinking funds that were put aside due to global events. During the pandemic, I discovered a love of my own backyard. Literally! The summer of 2020 and 2021 were spent in my own yard, tending to my annuals and watering my lawn. International travel fell to the bottom of my priority list. It still kind of blows my mind that it’s been over 3.5 years since I’ve been inside an airport!!!

My point is this. You may have more priorities than money. So what? Use sinking funds to maximize the enjoyment of your money. Ensure that it’s dispersed in ways that will allow you to live your best life. Like I said before, I didn’t start out with enough money to do everything that I wanted. International travel took backseat while I fixed up my house. Fixing up my house took backseat until I was out of debt. Getting out of debt was secondary to stuffing my RRSP as best I could on my entry level salary.

The bottom line is that I had to get a few pay increases under my belt before I could increase the amount of money going to my sinking funds.

If it takes you a few years to set up all of your sinking funds, then so be it. That’s completely normal. Only the privileged can do it all at once. The rest of us have to do more strategizing. The time will pass anyway so you might as well be using your time and your money in ways that get you what you want most.

Sinking Funds – Key to Winning With Money!

Spring has finally sprung! We are nearly halfway through 2022, so it’s time to start doing some financial forecasting for 2023. What big expenses do you have to pay for in first six months of next year? And have you set up your sinking funds to pay for them?

While it’s important to live in the present, it’s also prudent to plan for the future. How you’ll spend your money is definitely one of the things that you should be planning well in advance. After all, there’s a fairly good chance that your dreams and goals for your life have some kind of financial component. If you’re frittering your money away on stuff that doesn’t matter to you, then where will you find the money to pay for the things that you really & truly want?

My financial life got immeasurably better when I started using sinking funds, aka: planned spending. Doing so meant that I was saving money for the most important stuff first. When I was younger, I decided that I wanted to have money already set aside for the big, major expenses that come up every year. In my case, those expenses included property taxes and insurance premiums. I had to pay for these necessities even though I didn’t particularly enjoy them. And they were very expensive – several thousand dollars a year. By having sinking funds in place, I didn’t have to scramble to pay my taxes or go into debt to make sure I was covered in case something happened to my car or property.

Please don’t misunderstand me. There are other major expenses that definitely fall into life’s goals and dreams category. For me, travel is a huge spending category. One of my dreams is to visit as many places as I can while it’s still physically comfortable for me to do so. In the Before Times, I was fortunate enough to visit Europe several times and had been planning my first trip to Asia. Then the pandemic hit and my travel plans went on hiatus. That doesn’t mean that I don’t have a sinking fund in place for travel. Au contraire! When I feel comfortable doing so, I’m heading back to the airport and going somewhere. Flights and travel haven’t gotten any cheaper in the last 12 months. Demand for travel is high right now thanks to all the pent-up demand. I’m confident that it will settle again. At that point, I’ll be roaming the world on the money that’s been set aside in my travel account.

How to Start a Sinking Fund

My first step to starting a sinking fund was to track my expenses. I wanted to know where every nickel was going so I could project how much I’d need the following year to cover big annual expenses. My next step was to divided next year’s anticipated expense by the number of paycheques until that expense would be due. The resulting amount was the amount that would go to my sinking fund.

For example, if my insurance premiums are $2600 per year, then I save $100 per paycheque for the following year’s premium payment. (I’m not a fan of monthly debits and prefer to pay my premium in one lump-sum.) When the following year rolls around, I’ll have $2600 waiting to pay the invoice.

It’s no secret that I’m a huge proponent of automatic transfers. I rely on them to put money into my sinking funds and to re-fill the funds as necessary. Over the years, I’ve learned the following tidbit about myself. If the money is available to me, then I will spend it… and generally on things that aren’t that important to me. However, sinking funds remove this option from me. I can only spend what’s leftover after the automatic transfers have gone through!

Another little tidbit I’ve learned about myself is that it’s best if my sinking funds are in another banking institution. While I use my chequing account daily, I access the sinking funds way less often. There’s no need for me to see those dollars just sitting there. It’s best for me that they be squirrelled away so that I’m not tempted to spend them.

Goals, Dreams & Fun Stuff!

Winning with money also means that you have sinking funds in place for your wants too! After I’d successfully set up sinking funds for the un-sexy stuff, I created a few for the non-necessities of life. The things that normally threw a wrench in my budget involved fun: birthday parties, holidays, anniversaries, invitations to concerts, etc…. I want to participate in these things with my family and friends. Money is sometimes a part of those celebrations, whether it involves a present, travel, tickets, contribution to a group gift or whatever. Sometimes fun is free. Other times, it involves money. When it does, I need to have some on hand so I can say “Yes, I’ll be there!” without worrying about cost.

When you have the money, make sure that some of it is going towards your goals and dreams. You shouldn’t feel bad for wanting to achieving what your heart really wants. Maybe it’s a weekend at a creative writing workshop. Perhaps you’ve always wanted to take horseback riding lessons. Some of you might want to take culinary courses in various cuisines. Whatever it is, it’s important to you and you should try to make it your reality. You know best what would make your heart sing. I’m just here to encourage-prod-nudge you into creating a sinking fund so that you improve your odds of making those goals and dreams come true!

5 Traits to Become Wealthy

Ever since I started learning about personal finance, I’ve noted that those who are successful at it have 5 traits in common. These 5 traits appear regardless of the path taken. Some people invested in the stock market, either through stock picking, mutual funds, or exchange-traded funds. Others became real estate investors and built a portfolio of rental properties. Then there’s the group of people who only invested in their retirement accounts and grew those a nice 7-figure amount before retirement.

Regardless of the path chosen, the people who accumulated a comfortable cash cushion all appear to have relied on the same 5 traits to become wealthy.

The Word “No”

To my mind, saying “No” is fundamental to achieving your goals. There will always be someone or something who wants your money. If you’re unable to say “No” to the requests that stop you from meeting your priorities, then how will you ever be able to create the life that you want?

Gathering the funds to meet your financial objectives will require you to use the word “No”, a lot. Let’s pretend that you want to start investing in real estate. Unless you can use the strategies Richard Fain discusses in this video, you’ll need a down payment to get into the real estate market. Saving for a down payment may take you a year or two. If you don’t use the word “No” when faced with other opportunities to spend, then it’s going to take you considerably longer to achieve your goal.

Delayed Gratification

This trait is a kissing cousin of the first one. It’s the ability to say “No…not right now.” It’s the ability to delay saying “yes” to whatever it is that you might want.

Instead of going into debt to buy something today, you save up the cash and buy it tomorrow.

Delayed gratification keeps you out of debt. If you pay cash, then you’re not using credit. When you don’t use credit, then you don’t pay interest to a creditor. The beauty of not paying interest is that more of your money can be spent on the pursuit of your life’s dreams.

Be honest with yourself. Wouldn’t you prefer to spend your money on your dreams instead of spending your money to pay off debts for purchases that don’t align with your financial desires?

My long-time readers know that I love sinking funds! I use them all the time because they help me to organize and track my money so that I can get what I prioritize most. Between sinking funds and automatic transfers, I very rarely need to think about how I’m going to pay for things. My paycheque lands in my chequing account. My automatic transfers whisk pre-determined amounts of money to each of my sinking funds. Whatever’s left over once the transfers have done their task is mine to spend freely.

Retirement money? Check!
Emergency funds? Check!
Insurance premiums? Check!
TFSA contribution? Check!
House renovations? Check!
Travel money? Check!
Utilities? Check!
Charitable donations? Check!

Your priorities will determine your sinking funds. If you want to buy your first home, or your first rental property, then you’ll have a sinking fund for your down payment. This is where you’ll direct a certain portion of your income until you have the down payment that you need to make your purchase. This sinking fund might be in place for one year, two years, five years, or more. It hardly matters. What does matter is that you are saving money towards one of the goals that is most important to you.

Some sinking funds will last longer than other. For example, your retirement funds are just a long-term sinking fund. You save and invest money in a retirement account so that the funds can replace your paycheque when you stop working for a living. However, your sinking fund for utilities exists to hold money that will be spent within the next 30 days. The money goes in – the bills arrive – the money goes out to pay the bills.

Whether designed to pay for long-term goals like retirement or financial independence, or to pay for short-term goals like paying your utilities, sinking funds are integral part of your financial toolbox.

Living Below Your Means

If you earn $60,000 and spend every penny, then there’s no way to build wealth. Your net worth remains at $0 because nothing is set aside for investing.

However, earning $60,000 and spending $59,000 means that there’s $1,000 available for investing. That $1,000 is available because you made the choice to live below your means. The money can go towards the down payment on a real estate purchase. It can be invested for retirement. It can be the seed money for a business.

Leftover money doesn’t happen by accident. Trust me – there is no amount of money that cannot be spent. The more you earn, the more spending opportunities you will find. The duty to impose spending limits in your life rests solely on your shoulders .

Money

Surprised that I saved this one for last?

You shouldn’t be. Its priority in this list is irrelevant. Whether you earn a little or a lot, wealth will always elude you if you can’t implement the first 4 traits that I’ve already discussed.

Let’s say you earn $250,000 every month…but you don’t know how to say “No” when presented with the opportunity to rent a yacht for the week to party in Monaco. And you’ll need to rent a private jet to get there since you can’t rely on traditional airlines to get you there on time. Let’s face it – when you’re earning $3Million per year, do you really want to travel on Air Canada? Or even British Airways if you can afford to rent a private jet for you and a few of your closest friends?

Let’s say that you earn $35,000 in a year, and you manage to set aside $3,000. You are living beneath your means. Those dollars might be allocated between a variety of sinking funds. You employed the trait of delayed gratification. The reason you have that $3,000 in the first place is because you said “No” to the various requests for your money.

Unless you impose some kind of spending limit on yourself, the money will be gone. It doesn’t matter how much you earn. This is why the simple act of earning money is insufficient proof that a person is also building wealth. It takes all 5 traits to become wealthy.

Without the first 4 traits, no amount of money will make you wealthy because you will spend it all. You cannot be financially wealthy without money.

Create Money Pots and Organize Your Money

Welcome to 2021! A bright and shiny new year stretches out in front of us. Have you figured out what you want to do with it? Any resolutions in place yet? Or do you firmly believe every new dawn brings you the chance to change you life as you see fit?

Whichever philosophy you adopt, I’d like to suggest that you organize your money in a way that best suits your lifestyle.

You know how your recurring monthly bills arrive every other day? It could be a bill for a utility like electricity, heat, or water. On the other hand, it could be bill for some service that you makes your life a little bit easier, like a housekeeper, or lawn service. Maybe it’s a subscription for some kind of pampering service, like a wine-of-the-month club or food delivery. Whether by email or by snail-mail, there always seems to be some utility/service provider out there who wants to receive some portion your hard-earned money:

$13.99 for Netflix;
$400 to heat your house;
$14.95 for your Audible books;
$104.71 to keep your mobile phone turned on;
$57.85 to keep the weeds away;
$60-$140 for your wine subscription;
$115 for your gym membership;
$Y-amount for product/service-of-your-choice.

You get my drift. Between you, me and the fencepost, it’s more likely than not that you have way more monthly subscriptions than the few I’ve listed above. Who do you know who has only one streaming service? I know people who pay for cable on top of Netflix, Crave, and Disney+!!!

And even though you agreed to pay for each of these utilities and/or services, are you ever truly and deeply excited to actually get the bill? Does your heart leap with joy when it’s time to pay for what you’ve ordered? Or is it more often the case that you ask yourself where the money is going to come from in order to cover the cost?

It’s been my experience that the fun is in the having of the whatever-it-is, not in the paying for the whatever-it-is.

Here’s another couple of questions for you. And you need not share your answer with the class if you don’t want to. I just want you to be brutally honest with yourself… Are you ever caught off-guard by these payment demands? Are the words “I thought I just paid for this!” a part of your daily lexicon?

If so, then I have the perfect solution for you.

Introducing the money pot.

Sadly, it is not the one at the end of the rainbow. Nope, these nifty little caches of coins are ones that you will fill yourself. You create money pots to segregate your funds based on their intended purpose.

A money pot is the place where you set aside money from each paycheque to pay for various things. In this particular circumstance, you should create a money pot dedicated to your recurring bills. If you use your money pot correctly, I promise that you will never again have to scrounge around for money to pay your monthly bills.

Money pots are an integral part of your financial armamentarium. Think of them as stopover points for your money. The money arrives via your paycheque, stays in the money pots for a little bit, then leaves again to pay for its intended purpose. If you create a dedicated money pot for your recurring bills and use it as intended, its balance will fluctuate without ever growing significantly. Money will go in – bills will arrive – money will go back out to pay them.

Where does the money come from?

You’ll fund this money pot by adding up your monthly recurring bills then ensure that this amount of money finds its way into your utilities/services money pot every money. If you receive atleast 2 paycheques each month, then you can automatically transfer half of that amount to you money pot. If you’re paid monthly, then the full amount comes out of your paycheque and goes straight into your money pot.

Let’s say your monthly recurring bills are $1000 each month and you’re paid every two weeks. You’ll set up an automatic transfer of $500 every two weeks. That money will be sent to the money pot dedicated to your monthly bills. By having these funds set aside, you can pay your recurring bills as they arrive. You have the comfort of knowing that your money pot will be replenished every 14 days. No more scrounging around for the cash to pay your bills!

From this point forward, your automatic transfer should be automatically funding your money pot every time that you are paid. To be blunt, set things up so that your paycheque goes into your chequing account and then some of it is automatically transferred to your money pot. Recurring bills land in your inbox or mailbox and you pay them immediately from the money pot.

You know what else is great about this system? You’re in control of the size of your monthly bills. If you want to shell out less each month, then you can do so. And if you think your life needs a little something extra each month, then you’re in charge of that decision too. The amount of money going into your money pot is entirely up to you.

Divide and Conquer for the Win!

It’s been my experience that having one stash of cash from which to pay everything makes it rather easy to delude one’s self. The precise details of the delusion vary but, at its heart is the false belief that a large balance in one’s chequing account means that all the money therein is suitable for spending willy-nilly. Don’t feel bad if you’ve ever succumbed to this fantasy. You’re human and this illusion is particularly seductive.

Frankly speaking, the majority of mere mortals aren’t particularly good at ensuring today’s wants do not take priority over tomorrow’s needs. It’s okay to admit it – wants are generally more fun that needs!

You’ve heard me talk about sinking funds before. Once you’ve identified your priorities, you direct your money to paying for them by relying on automatic transfers. The money pot for your recurring monthly bills is a sinking fund designed to handle the very short-term demands on your money. You’ll use the funds within the money pot to pay for the routine bills that come around every 30 days. It is to be kept separate from your emergency funds, your retirement funds, and your investment portfolio. This is not the money that you spend on groceries, clothing, or vacations. This money is for funding those bills that come around, month-in-and-month-out, until such time as you cancel them.

Since you’re the only one in charge of your money, it’s on you to ensure that your recurring utility bills are funded, before you start spending on your wants. Creating and funding a money pot for your recurring bills is an effective way to complete this monthly chore.

Trust me on this! Automatically funding a money pot for all of your recurring monthly bills guarantees that the money doesn’t “accidentally” get spent on something else.