One of the most valuable things I have learned regarding budgeting and personal finance is the concept of creating specific “funds” in your monthly budget. It was one of those “Mind-blowing” nuggets of knowledge that is pretty simple conceptually and yet, I never would have thought to do it on my own. Can I get a slow clap for Dave Ramsey and his book, The Total Money Makeover. (click here to purchase- you won’t regret it!)
What Exactly is a “Fund”?
What constitutes a Fund, you may ask? I shall explain in detail. (I really hope you read that last line in a British accent!). Simply put, it’s kind of like having mini savings accounts in your budget for specific categories. We allocate money toward specific categories every month or most months to create a fund which will carry over to the next month. Specifically, the balance of the previous month’s fund carries over month to month. You can have “funds build all year” or just for a few months.
We use “Everydollar Plus” to budget and so it makes this whole process EASY! We don’t have separate accounts, for these funds. Everything exists in one account. We make sure every month that the amount of moolah that’s in our bank account matches the numbers we see on our “Everydollar” budget. It takes a few months to get used to but I’m telling you this concept has made a big difference in my budgeting success.
Example of types of Funds in your Budget
- Holiday Fund
- Birthday Fund
- Kids Activities Fund
- Medical Fund– This fund is pretty large. We have about $6000 in it due the fact that 2018 was a medical beast… that’s a story for another time!
- School Supples/Fees Fund– Starting in January we put around $40 dollars in this category and increase the amount as we get closer to august.
- Josh and Ashley Allowance Fund– Every month we give ourselves $30 to spend. We usually try to save it so we can make bigger purchases later.
- Clothing Fund
- Home Improvement/ Repair Fund
- Car Repair Fund
- Date Night Fund
- Vacation Fund
We can Forecast our Finances
Similar to how a meteorologist forecasts the weather, we can forecast our finances for the month. However, we do have a leg up on the weatherman. He can’t control the weather but we can definitely control most of our financial decisions. Holidays reoccur annually. Also, school fees are due every year. It comes at no surprise that cars break down and our homes need repairs. Yet, so many people leap into crises mode when these events occur. I used to flip out too! We can’t prepare for everything but we can prepare for what we know is coming.
3 Reasons Why you Should Create Funds in your Budget
1. Feeling a Sense of Control and Peace Regarding your Finances
Bad and unpredictable things are going to happen to all of us. Utilizing “funds” in my budget has eliminated so much of the stress I felt about money. Soon after Josh and I started this debt free journey, our son needed a surgery. So, I spent the 2 months before the surgery making sure we had the cost estimates and subsequently the money to pay for the procedure. Everything was going well: we were prepared. Unfortunately, on our way to the hospital our tire literally blew up. Normally, I would have gone into crises mode and of course, I would have worried about the cost of everything. Here’s the beautiful thing, we didn’t freak out. We had money in our “car-repair” fund and so the tire blowing up was inconvenient and annoying but that’s all it was, annoying.
2. Funds Help you Stay on Budget but also Buy Things you Want
There are so many cool things to buy. So often, we see people struggling with impatience or delaying gratification because we rarely have to be patient for anything. For example, we can receive groceries delivered right to our front door, instant messages from our friends, and Amazon Prime 2-day shipping. We can get what we want and we can get it fast. Funds help you say “no” or more often “not yet” to things. No, I cannot go on a trip this month but in 5 months I can because I’m going to put $150 in my vacation fund each month.
Sometimes, I can get somethings right away. If I see a pair of shoes for my kids, I just check my “clothing fund” to see if it’s a purchase I can make. Because a “Fund” builds on the the previous month’s balance”, sometimes I’ll have $30 in the fund or other months I’ll have $100 depending on what I spent during the previous month’s. It’s so much easier to say, “no, not yet” than just a flat out “no”.
3. Funds allow for Spontaneity
Does this sound counterintuitive? I know it might sound odd that any part of budgeting and family finance could seem spontaneous but it can. This was a big deal for me because this bird needs to feel like I can stretch my wings a bit! When you have a fund building over time, if you see something on sale or something you have been needing or wanting. You can get things guilt-free because you already have money allocated for that item. Seriously, it’s the most freeing feeling to be able to buy something “impulsively” but have no guilt because you are being intentional about where your money goes. Due to your budget being detailed and not ambiguous, you can buy things with a little spontaneity. The best part is that you don’t have to take home your purchase with a side-order of shame and anxiety.
Hope this information helps. If you liked this post please share it with your friends on Social Media!
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