emergency funds

Sinking Fund, for the Win (Again!)

photo shows jars full for coins with labels for things like travel, education, house, etc.

Some time back, we wrote about the benefits of a “sinking fund” to make for a smoother life, financially speaking. This is a way to set aside money systematically for unpredictable-but-likely expenses, long-range spending plans, and lumpy annual expenses. (When businesses or other entities use sinking funds, it’s usually to lower the level of debt over time.)

My home is (was?) in good shape, but I knew maintenance and repairs were bound to be needed. Furniture and appliances do not last forever, either. My vehicles are in good shape, but someday I will need to pay for a new one.

To meet these needs and more, I arranged an automatic deposit into my brokerage account each month, calculated to—hopefully!—handle whatever might come up.

So far, eight monthly deposits have been made. And wouldn’t you know it, an unexpected home expense has hit.

It might have been the air conditioner or a washer or a dryer. Termites could have popped up or the insurance deductible for storm damage. But the money in my sinking fund can be spent on what is needed, when it is needed.

I don’t know precisely how much it is going to take to fix the problem, but the important thing is that it won’t stress me: the sinking fund has more than enough to cover the issue. Next year when I think about replacing some windows, and many years from now when the roof needs replacing, I’m sure I will feel the same way.

The examples mentioned here aren’t exactly emergencies, but they are sudden. They are part of the fabric of modern life. If you own a home or a car, if you have one of those fragile human bodies, if you live somewhere weather happens… this fund may help you avoid tapping into your emergency fund or resorting to expensive credit to cover something that always could-have-been coming.

So one of the best things about the sinking fund is that I spend less time worrying about the sudden expenses the fund is intended to cover. It took just a bit of thought to set up, then it flies on autopilot. I review it from time to time, and I can always adjust the monthly deposit.

Clients, if you are ready to talk about reducing the stress of unexpected expenses in your life, call or email us.


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Sinking Feeling or Sinking Fund?

photo shows a jar full of coins, a stack of cash, and a small card that says "PLAN"

Have you ever been faced with a large expense for which you were unprepared?  

I have. It gave me a sinking feeling. 

Sinking itself isn’t always a bad thing. The term “sinking fund” originally referred to a dedicated reserve a corporation would set up to repay a debt, contributing funds on a regular basis to build up the needed amount.  

Many individuals have adapted the idea to manage their personal finances: having a sinking fund may help us avoid that sinking feeling

This idea came in handy as I recently set out to see how well the sources for my retirement income were matching up with my expenses. My home has a new roof, won’t need another for many years. My vehicles are fairly new; they won’t need to be replaced for years, either. 

But the fact is, someday I will need to pay for a new roof. I will need to replace a car. Furniture and appliances wear out. More predictable but “lumpy” expenses happen, too, like property taxes and planned travel. 

If my budget fails to account for these items, my budget is not really covering all of my living expenses, is it? The answer is a sinking fund, as in these examples. 

  • Home maintenance. If I sink $200 for repairs and such into a sinking fund every month, I would have $12,000 every five years. That should cover a new roof ten or fifteen years from now… or deductibles on storm damage… or a chance to repaint when needed. Likewise, $100 monthly should cover whatever appliances or furniture need replacing: that’s $12,000 over ten years. 
  • Transportation. Piling $350 monthly toward vehicle replacement ought to pile up to enough to buy a car when needed, years down the road. 
  • Annual needs. By adding in one-twelfth of my property taxes and one-twelfth of the annual travel budget each month, my sinking fund should be able to handle most anticipated lumpy expenses, in general. 

I don’t know when the dryer will need replacing—or what else might break!—but I should have the funds to meet the need. And in any of these scenarios, if the balance gets way ahead of likely expenses, I could always pare back the monthly deposit, direct that money elsewhere as I see fit. 

There are different ways to do sinking funds. I set up a monthly automatic transfer into my LPL Financial brokerage account, where the funds will go into an insured cash account until needed. If you would like to set up a sinking fund for your lumpy expenses, email us or call. 


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Go Hard, Breathe Easy

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Being calm seems to come easier to some. Maybe it’s a natural disposition, but for some folks we know, they went hard until they could breathe easy.

Many of our friends and clients have what they have as a result of a lifetime of work and savings. They’ve weathered storms and chose to ignore fads. They decided on some goals and set things to work toward those goals.

Those things didn’t happen all at once. But each of us can choose a little hard now to take it easier, later. The costs of deferring pain are sometimes far too high—and we don’t realize it until it’s too late. It’s credit payments that pile up. It’s deferred maintenance that we wake up one morning to discover is now an emergency. It’s a routine that felt too hard to keep up, and now our wellbeing is anything but well.

Is it possible to buy yourself some calm, even in times of challenge? Those may be the best times to invest in some calm.

Keep your emergency savings at a level that feels right for your family. Keep working your plans; make them automatic where possible.

Know that this challenge will not last forever. (In fact, a new best and a new worst will always await us. Such is life.) We can hope that each new challenge will be more meaningful. We can hope each will make us wiser and will cause less damage.

It won’t just happen that way. Some may be born with more calm, but some of us go hard until things aren’t so hard.

Can you work with something hard today? It may help you breathe easier tomorrow. Clients, if you would like to talk about this or anything else, please email us or call.

Financial Wellness

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We put a lot of time and energy into researching investments and managing portfolios. But there is more to financial wellness than being effective investors.

It is handy to understand where you are financially. Putting together a summary of what you have, and what you owe, is a great first step. What you own (your assets) less what you owe (your liabilities) is your net worth. This is a key indicator.

Not everyone is going to be great at creating and following a detailed budget. But it behooves each of us to think about where and how we spend money. At 228 Main, we don’t really have a lot of time to hector you or lecture you about spending money—you are the boss of balancing life in the present moment and preparing for the future.

When you know where you are, and understand the spending that needs to happen in your household, you can go to work on two ways to grow your net worth:

1. Reduce liabilities by paying debts off. One proven method is to pay some extra on the smallest one. When that is paid off, the amount of its payment plus the extra can be put on the next one until it is paid off, and so forth.

2. Increase assets by increasing your regular contributions to retirement or savings plans, or starting new accounts.

Once your plans are on track, there are some other niceties you might attend to, such as an emergency fund, managing your credit score, and beginning to think about your long-range goals.

What good is your money if it doesn’t connect at some point with your real life? That’s why we work to understand where you are, where you are trying to go, and the strategy and tactics you might use to get there.

Clients, if you would like to talk about this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Money in the Bank

© Can Stock Photo Inc. / turk12

We have learned over the years that money in the bank is useful and worthwhile for a variety of reasons. It helps us deal with emergencies and take advantage of opportunities. The confidence that comes from having that certain amount safe and sound is perhaps the best thing about it.

With the right amount of money in the bank, people may have more tolerance to the ups and downs of longer-term investments. With today’s low returns on safe, liquid investments, for some living with volatility is the only way to have a chance at decent returns over time. (We are using ‘money in the bank’ as a term to include a variety of conservative investments likely to maintain value.)

As with so many things, there is a gap between how people usually think of their money and how the financial industry talks about it. For example, when you think about the balance you need to have in order to sleep comfortably, you think in terms of a dollar amount. It might be $2,000 or $200,000 or some other number—a matter of circumstances and personal preference.

But the financial industry talks about it in terms of percentages. For example, a blend of 80% stocks and 20% conservative, or 60/40, or 40/60. We see things a little differently. Like Warren Buffett, we believe a temporary dip is not a loss, we are optimistic about the long term, and we know that tolerating volatility is crucial to successful investing. But you still need to sleep comfortably at night, and you still need those advantages that come from having money in the bank.

Our proposal: we will be working with you in the weeks and months ahead to sort out how much if any of the funds entrusted to us should be devoted to capital preservation first. We won’t be talking about percentages like 80/20 or 60/40; we’ll be looking to help you ascertain that dollar amount in conservative investments that strive to leave you feeling comfortable.

This is slightly harder than it sounds, since the trade-off for more stability is less growth potential over time. But we are here to work you through these issues. Write or call if you would like to discuss your situation in detail, or have other questions about this.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.

Stock investing involves risk including loss of principal.

There is no assurance that these techniques are suitable for all investors or will yield positive outcomes.