Happy Friday the 13th!

I love Friday the 13th! I’ve always thought of it as lucky. Maybe it’s the contrarian in me. Maybe it’s the fact that I’ve never noticed anything bad happen to me on a Friday the 13th. Perhaps both. Either way, I love the day! Since people fear it, it has a spooky vibe to it and I love it!

Anyway, since today is considered “unlucky,” I’m going to use today to give you a way to ensure you don’t have “bad luck.” I consider “bad luck” to simply be bad planning.

I do consider myself to be fairly “lucky,” after all I managed to survive my rebellious teen years and my reckless 20s. The sheer amount of near death experiences makes me feel like I have my very own guardian angel, who has clearly been working overtime since my birth!

On to the personal finance part: Sinking Funds!

All of us will have moments when something happens like: a tire blowout, an unexpected doctor’s visit with a giant bill (particularly in the U.S.), or your router gives out and you need to get a new one ASAP since you work remotely.

While we can’t predict everything that can go wrong in our lives, we can help mitigate the effects of such things by creating sinking funds for the things we can reasonably expect.

I have several:

• House
• Car
• Gifts
• Travel
• Miscellaneous
• My best friend’s wedding (she’ll likely have 3 and they are definitely going to be expensive)

So now when things inevitably happen, like the other day when I went to have my tires rotated and they told me I needed two new tires, I can take care of them without worrying about where the money is coming from.

It took me years to have my system down. I’m not gonna lie, it took a lot of trial and error because for some reason I never could figure out most of the things that could go wrong! Plus, I forget there are repairs that are necessary once your car is a certain age…oops!

Side note: (so you know why I have all these sinking funds rather than a giant savings account)

One thing you should know about me is: I’m optimistic that the stock market will grow in the long term; this is because the average annualized return of the S&P 500 since 1957 is about 10% per year. If you go back to look since the inception in 1928 it’s 9.9%. Looking at it’s performance you can see that even though it definitely does drop at various times in history, it also eventually returns to normal and then grows beyond that. So I’m confident that’s how it will continue. (I encourage you to do your own research and figure out if you want to invest. I’ll talk more about the stock market later.) I’ve noticed that people in the FIRE community tend to skew conservative and always calculate their returns at 7% or even less. I’m reckless and use 10%. I figure I won’t have to worry about taxes, since I plan on withdrawing only what I need and figure I won’t even be taxed. I’ll leave that for another post though.

Back to the sinking funds….

The reason I have so many of these sinking funds is because I don’t like the idea of having a huge emergency fund that just sits there doing nothing for me. I invest most of my money and I loathe even thinking of having 40k sitting in a bank account doing nothing for me. Yet, I know it’s wise to have easily accessible funds that aren’t at risk of dropping 50% right before you need to use them, so I use sinking funds held in High Yield Savings Accounts.

I’m going to show you how I calculated how much I’d need in each account. (Almost, because I honestly have no idea how much I’ll need for my BFF’s weddings, I just know it’s a lot and therefore I should stuff cash in that account. The good thing is it’ll probably be at least 2 more years till they start planning weddings, so I have time!)

Let’s start with a simple one: gifts!

Most people give gifts each year and for various reasons. Birthdays, anniversaries, pick-me-ups, congratulations, sorrys, graduation, holidays…there are tons of reasons! Yet, this one was the easiest one for me to start with.

First, I made a list of the special people in my life. I even included an extra person, in case I wound up having a significant other so I wouldn’t be cheap to them since they weren’t in my mind when I made my list, haha.

• Mom b-day: 200
• Mom xmas: 50
• Fam1 b-day: 100
• Fam1 xmas: 50
• Friend 1 b-day: 50
• Friend 2 b-day: 50
• Me b-day: 400
• Me x-mas: 0
• Work: 100
• Bonus: 200
• BFF weds: 100

Total: 1,300

Monthly: Total / 12 = 108.34

Then I included $100 for dumb stuff I didn’t wanna contribute for at work, but would inevitably feel the peer pressure to do so. I also included an extra $200 in case I wanted to donate to a charity, a good cause, or just someone who needs help. Yes, I included myself on the list because I love myself too and why wouldn’t I plan to give myself gifts? Was there a particular reason why I chose those amounts? Not really. Only that I don’t like to spend much on X-mas because I think it’s dumb. I usually spend a lot less than the money I allotted for that. For b-days I want it to be special, but also I’m a lot more generous with my mom than anyone else. Feel free to pick whatever number you want, just do your best to pick something reasonable that you’ll stick to.

After I had my list, I totaled everything up and divided it by 12. That way I knew how much I had to save in my Gifts & Donations account each month. I pretty much only accounted for birthdays and x-mas, but if you’re the kind of person that loves to buy people stuff for whatever random thing you should give yourself a set amount so you don’t go broke giving and can make your money grow for you. Boundaries are important.

I do the same thing with my car:

• 4 Oil changes
• Annual inspection
• Annual registration
• Insurance
• Misc. care (wipers, fluids, etc.)
• Tires (3 years)

Total / 12 = Monthly savings amount

These are all the things I could think of for my car. I assign each category a value based on what I have paid before for the service. On top of the monthly amount that I calculate, I usually add another 5 bucks or something per month in case I forgot something. I know I’ll need new tires every 3 or 4 years depending on how much I drive so I figure out the cost of 4 new tires right now then divide it by 3 or 4 years and add that number to the rest of my yearly list. Then divide by 12 and I have the amount I need to save per month. I do not add gas on here because that’s in my monthly budget. I also don’t save for my deductible because I figure I’d use my emergency fund for that if I needed to. Or if I happen to not have any funds in there, because clearly I like to live dangerously, I’d put it on a credit card and sell some securities in my brokerage account to cover it that way.

***I am not telling you this is the best way or the way you should handle your finances, I’m just telling you what I do.*** You should do your research and figure out what you’re comfortable with and then put together your own plan. Most people in the FIRE community seem to relish having tons of cash lying around. I don’t like that, so I don’t do that.

You can also do this for any major fun purchase you want to make! What I love the most about planning ahead for my surprise expenses is that I have money specifically set aside for fun stuff too and I get to enjoy my life no matter what surprise expense pops up. It’s your money, make sure you enjoy it!