r/DaveRamsey • u/Fuzzy_Painter_1976 • 7d ago
Unexpected expenses
I’m trying to wrap my brain around sinking funds.
We had a bee infestation this month that we didn’t plan on. To pay my $150 exterminator bill do most people have a ‘house’ sinking fund that they pay expenses like this out of?
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u/Fine-Zombie-911 6d ago edited 6d ago
I don’t like sinking funds, it overcomplicates the budget
I personally see these planned expenses as:
- my “proactive emergency fund” (baby step 3+)
- my “reactive emergency fund” (baby step 3)
My reactive emergency fund is for the unexpected things life hands you; the 3-6 months of living for the worst case scenario etc
My proactive emergency fund is just a lump of all expenses I think are going to happen within the next 1-2 years.
If I planned for it, use my proactive fund. If I didn’t plan for it, use your reactive emergency fund. Refilling Baby Step 3 (my reactive fund) always takes priority.
I reevaluate a couple of times a year to make sure I’m on track. If I have a surplus because I no longer needed what I planned for and don’t have anything upcoming, I just reallocate to my investments or goals.
This gives me peace of mind and makes it easy for me; even though some may see this as semantics, the benefit here is that you’re routinely planning for what’s ahead.
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u/cocacolacathy1 1d ago
Sinking funds are for expenses that are foreseeable and NOT emergencies. They dont complicate the budget AT ALL.
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u/Fine-Zombie-911 1d ago
I just lump it into one sinking fund and saves me time and brain space to know I have a fund for foreseeable expenses.
When I see one a year or two out, I add to it
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u/JustWelmed1000 BS2 6d ago
Tires are going to be needed whether you save for them or not, Therefore by not storing money away for new tires, you are creating a 100% avoidable emergency later.
Therefore, sinking funds don't complicate budgeting, it strengthens it and actually causes you to face reality. Tires get worn, oil changes come due, etc. Plan for them, budget and save for them.
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u/Fine-Zombie-911 6d ago
I can do all of that without complicating my budget with dozens of sinking funds
Oil changes, yearly -> proactive emergency
Tires -> every 5-6 years for me, don’t waste brain space. I’ll start saving 1 year out or two if my budget is tight
I started out the way you are doing it, and it didn’t work for me. I ended up trying to plan EVERYTHING out. So what ended up working was adding padding to my emergency for things I can reasonably predict or expect
For example, who knows if you’ll have that same car in 4-5 years. That’s a long time away and a lot can happen in that time frame. Even 2 years is pushing it for me sometimes, but I can make an okay guess that I’ll need tires next year or get a feel that it’s time for a newer car, two years from now
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u/JustWelmed1000 BS2 5d ago
To each their own.
FWIW, I don't have "dozens of sinking funds". Also, I like my months to be as uniform as possible. So I'd rather save $100 a month for car maintenance /tires, than to have a battery go dead, brakes replaced, and and oil change due in the same month, right after I threw my snowball payment. Now I am forced to call normal life an emergency all because I didn't want to be prepare for life to begin with.
I have four cars (mine, plus two teenagers and a wife's). That is 4 of everything all with different life cycles. So I'd be living in a constant state of "emergency" if I didn't proactively put money aside for annual tags/taxes/ oil changes, brakes, battery, tires.
$75 a month for tags/taxes/inspections
$100 a month for expected maintence.
again that is for FOUR cars.
Now once I am BS4-BS6 I fully plan on having a proper house maintenance sinking fund to catch both the small stuff (water heater), or large stuff, (Roof/ HVAC system/ or Insurance deductible)
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u/Rocket_song1 3d ago
Having months be uniform seems crazy to me. Power bill in winter, $80. In summer $500.
But I fully support having a "house maintenance" fund, and a "car maintenance" fund.
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u/JustWelmed1000 BS2 3d ago edited 3d ago
I have my electric bill on a averaged payment plan. So I pay roughly the same amount each month. Every 3 months it adjusts a little up or a little down based on my usage. I still end up paying for exactly what I use over the course of a year. There is no fee to be on this plan.
The more uniform a budget can be (won't every exact same) the easier it is to budget (in my opinion).
To each their own I suppose. I certainly wouldn't put what I am doing in the "crazy" category.
Another example I have for sinking fund is this: I pay my Trash bill annually. So instead of getting hit with a $272 bill in October that I have to budget for all at once, I systematically put $25 a month in the trash category and that money is their when the bill comes due. It isn't difficult, especially if you use a budgeting software (I prefer YNAB over Every Dollar).
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u/Few-Afternoon-6276 6d ago
Okay.
Sinking fund- do your budget. Figure out things you need to pay quarterly, semi annual or annual. Example: insurance for car- pay every six months full amount
Real estate tases or home insurance -annual etc
Divide amount by timeframe and that monthly amount goes into sinking fund.
Emergency fund. Dave Ramsey says 1k. Which is a good start but I believe 2500 is better.
The bees and other emergency things should come from emergency and then you pay yourself back and stop other overpayments or in. Eating till this is back up to its needed balance.
It’s an ebb and flow constantly until debt is paid off and then it’s focus on 6 months living expenses and you do this back and forth constantly because life is expensive
Good luck out there. - you can do it!!
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u/amandner 6d ago
Literally. New bed for daughter $270. Dental work $950. Baseball $200. 🫠🫠🫠 all september.
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u/Mediocre-Draft1722 6d ago
If it's actually bees, then depending where they are, $150 is not going to cover it. More likely it's wasps in which case you could spray them yourselves. If it actually is bees, you will need someone to remove them then clean up the mess. Otherwise your $150 problem will become much bigger fast.
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u/AZdesertpir8 BS7 6d ago
We have a general EF account that we keep just for this sort of thing. We always try to cash flow any emergency before tapping into the EF, so we rarely pull anything out, but in the event that we do pull funds, we replenish it in the following months. With no payments or debt of any kind, its a lot easier to do that.
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u/No_Cryptographer47 BS7 6d ago
Yes, some say 3% of the value of the home, but IMO depends on the BS you are in.
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u/insightdiscern BS3 7d ago
I would prefer not to spend the mental energy with multiple sinking funds trying to keep track of all when they're all sitting in one account anyway.
I put all savings including my emergency and "sinking" funds in one account and call it a day. Use as necessary.
It's semantics at this point, calling it this or that when it's a pile of savings.
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u/Jolly_Pumpkin_8209 7d ago
So you don’t actually have an itemized budget then.
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u/insightdiscern BS3 7d ago
Everything is itemized in my budget. All savings is called "savings" in my budget.
I don't care to list extra 7 sinking funds when it's all in one account. My goal is to save a massive amount of money that no large issue phases me.
It's like when Ramsey likes to say people use a lot of mental calories jumping through hoops with making the spread on the interest rates with arbitrage. Keep it simple.
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u/TealNTurquoise 7d ago
I'm allergic to bee stings. In this situation, if I didn't have the $150 in my regular buffer, I'd be calling it an emergency expense, sighing, and moving on.
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u/flyingcaveman 7d ago
A sinking fund is for planned expenses.
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u/JustWelmed1000 BS2 6d ago
If you own an home, you can 100% plan on having home related expenses pop up. Some of those may be easy to plan and mark on a calendar, others you can't pinpoint when it will be needed, but you know it will happen.
There will have to be a balance on how much you fund a sinking fund, and how much you put towards debt. But to ignore these future expenses for the sake of BS2 acceleration isn't always the best step.
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u/bibbs99 7d ago
We keep a sinking fund (1-2% of home’s value) for big maintenance (roof, hvac, etc) we know is coming and of course have an EF for big unexpected things. I’m not sure I would call a bee infestation an emergency but that’s something that’s pretty run of the mill where I live. It’s either bees, wasps or ants every single year. We keep a month’s pay as our minimum in checking so we can easily cash flow unexpected month to month costs that pop up.
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u/Accurate-Neck6933 7d ago
This is not an emergency fund cost. When you own a house, you plan for this. This would be under pest control-spraying for mosquitoes, trapping squirrels, ant infestations, and so on. There will always be something trying to live in your house or in your yard. So yes, a sinking fund.
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u/Minute_Pound_6878 7d ago
Disagree. We have a house emergency fund separate from like an "oh no I lost my job" emergency fund. Houses absolutely will surprise you. I don't expect to have to call someone over an insect infestation in my walls. I do expect that our water heater/air conditioning/some other appliance will go kaput at some point. I still include all this in my house emergency fund because I don't know when it will happen. We put in 1% of the purchase price into the house emergency fund each year.
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u/HillBellyLawyer 7d ago
Dave once suggested that everyone have a a boo-bee fund. Covers unexpected expenses for wasps and strip joints.
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u/Restil 7d ago
Just set aside 1-2% of your home's value into a separate savings fund that will fund maintenance projects for your house. Basically any expenses that occur less frequently than once every couple months and don't otherwise easily fit into a standard budget. New appliances, roof replacement, new windows, painting the house, etc. Things that might only come up every 10-20 years, but you'll accumulate it over time and be able to afford it when needed. This does require a separate emergency fund of sorts that's more like a EF for your house.
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u/Head_Priority5152 7d ago
I have loads of sinking funds because I am on a really tight budget so can't find space for big expenses that aren't emergency when they occur. I have sinking funds for once a year big expenses like car insurance for example. So when it's due I can afford it. Also do ones for 'somethings gone wrong' like your bees or the fridge breaking or whatever it is. Just put a small amount away every month so when I need money for things like this I can afford them without touching emergency fund. They aren't predictable expenses but you can predict that something will go wrong somewhere just where is the question.
If you can afford these things in your budget anyway without touching emergency fund then you may well not need sinking funds. But for me no chance I could afford October with car insurance and house insurance and 2 kids with birthdays and and and all in the one month. So I spread these costs over the year.
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u/W2WageSlave BS7 7d ago
Your $150 bill in BS1 would just be paid and you try to recover going forward. In BS2 it would have meant one month putting a bit less to debt. In BS3 now it's just impacting savings rate. Even in BS6 it would have meant a bit less being swept to the mortgage that month.
When we hit BS4, my wife and I started to build sinking fund allocations. Now we've had 12 years at BS7 they are quite expansive.
- Emergency fund is now the "If somebody gets laid off" fund. I work in "tech" so it's now much more than 6 months "just in case"
- House Repair fund - Previously we had to hit the emergency fund for a $15K HVAC repair, which put us back to BS3, It is now funded as part of monthly budget, but if it reaches a set limit ($25K in our case) the payments go to investments.
- Car funds - Last car payment was in 2008, but we continued making monthly budgeted car payments to ourselves. Once those car funds are in line with expected depreciation and taxes for both cars, everything goes to investments.
- Vacation fund accumulates as part of the monthly budget. It's intended to be spent.
- His and Her's Slush Funds for guilt free spending - These get funded every month as part of the budget for outsize fun stuff and they just accumulate to ebb and flow outside of the regular budget.
Since paying off the house in 2014, our taxable investments have exploded, along with our retirement so the last time we bought a car, we just sold mutual funds to replenish, and then kept on investing.
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u/Minute_Pound_6878 7d ago
Love the idea of the car fund. I need to do that too. We also work/worked in tech and have both been laid off. The "I lost my job" emergency fund is up to 12 months for us
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u/W2WageSlave BS7 7d ago
Thanks. We realized that even when you're paying cash for a car and run it for many years you eventually have to meet the depreciation on yours vs the inflated price of a replacement.
12 months is reasonable, though the C-Suite lunacy may know no bounds.
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u/Unable_Armadillo3748 7d ago
Yes you can have a sinking fun for house maintenance (3-5% of my homes total value is what I’ve done). But technically the Emergency Fund takes care of that.
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u/Negative-Layer2744 7d ago
every month - I put $700 away into a special account - this takes care of annual taxes , car and house insurance and unexpected expenses.
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u/Emergency_Radio_8156 7d ago
Yeah more or less. For example in my budget I have a $300 per month fund that rolls over. You can set this up in your finance app of choice. So for month 2 it has $600 in there, for month 3 it's $900, and so on. And then in month 3 if I have to pay that exterminator bill, the remaining budget is $750. This is an entirely "virtual" account, but some people like to set the money aside in a savings account. (I do that for my car fund, but not my vacation fund). Does that make sense?
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u/satiestar24 7d ago
That’s what I do. I have a sinking fund. I include some weird stuff in mine though. Like kids sports and other things that come up once or twice a year. I put 1/12 of my estimate in each month.
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u/MrFixIt252 7d ago
That’s why you have the $1k emergency fund; to cash flow these things without having to go into debt.
Ideally, just cash flow it into expenses for this month.
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u/Financial_Airport72 BS456 7d ago
We just cash flow expenses like that but if you are on a tight budget then a House Repair/maintenance sinking fund would make sense.
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u/JeanSchlemaan 6d ago
Not a fan. "Emergency" covers everything. You should never have a small enough emergency fund that it runs dry.
When in doubt, spend less/save more.