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The 6 "Sinking Funds" That Make Me Ready For Any Expense - YouTube
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about eight months ago I was introduced
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to a financial concept that has already
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changed my life this sinking fund right
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around November people start saving
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rapidly for Christmas Hanukkah etc but
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what if you had been putting fifteen or
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twenty dollars a month away for a no
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sweat holiday season this in essence is
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the value of sinking funds minimize the
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stress you feel about large predictable
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expenses through small long-term savings
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goals the purpose of sinking funds vary
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per individual and can be personalized
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to you
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so whether you'd like to save for a
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three hundred dollar vacuum or a three
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thousand dollar car you can do so it is
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important to keep in mind that a sinking
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fund is different from an emergency fund
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emergency funds are meant as you might
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guess solely for emergencies however a
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sinking fund is used to save up for
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non-emergency expenses for example if
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you would like to have five hundred
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dollars to spend by Christmas Day of
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2020 you should start putting away forty
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five dollars and forty-five cents a
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month this February if you would like
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$100 by New Year's Eve you should start
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putting away ten dollars a month
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this March saving large amounts for the
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year becomes easier the sooner you begin
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I would like to have three hundred
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dollars to spend on the holidays in
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December so I have been putting $25 into
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a designated savings account each month
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which I started this January so how does
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it work a sinking fund is often created
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through an envelope system if you were
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saving as I did for Christmas you would
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pull out $25 from your bank account each
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month starting in January and store it
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inside your envelope in a safe location
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this is a tried-and-true method for many
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but I tend to prefer an online method
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for safety purposes using a
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high-interest savings account means you
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can also put your money to work and earn
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a little on top of what you'd already be
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saving to set up my sinking funds I went
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to my credit union and set up six
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additional savings accounts pets seventy
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dollars salon 120 dollars vacation fifty
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dollars car 325 dollars holidays
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twenty-five dollars clothing twenty
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dollars while I already budget in fifty
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dollars a month for my dog's needs I
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have
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so set up a sinking fund of $70 a month
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for his medical expenses I can't always
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know when an issue might arise and he
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will need veterinary care so this
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sinking fund gives me peace of mind I
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get my hair dyed once every two months
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and cut once every three months so my
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salons sinking fund allows me to make
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those purchases with no sweat previously
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I struggled to properly allocate these
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funds in my regular monthly budget
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because I did not like storing them in
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my typical checking account for me it is
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easy for my checking account funds to
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just walk away
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well vacation is not a category I am
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aggressively saving towards I still like
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to put $50 a month towards it for when
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opportunities for travel arise my car
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fund is by far the largest sinking fund
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I have at 325 dollars a month this
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monthly savings account is designed to
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include my yearly car insurance costs
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registration fees and any unexpected
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repairs my car fund does not include
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regular monthly expenses like gas that
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comes out of my regular everyday
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spending my holiday sinking fund is used
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to save up for my major holiday spends
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Christmas and New Year's Eve lastly my
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clothing sinking fund is a low priority
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fund that I used to put away for big
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purchases I have been eyeing a pair of
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athletic leggings to use for my boxing
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classes for a few weeks now and if I
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decide to purchase them I will be using
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the money from my sinking funds a
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sinking fund is perhaps most important
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for expenses that are likely to come but
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difficult to predict the timing of for
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example a veterinary bill high medical
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copay or car repair can easily force you
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to swipe a credit card by preparing for
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these expenses throughout the year you
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can prevent yourself from the
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last-minute money scrambling that's so
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often leads to debt sinking funds are
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especially useful on very tight budgets
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if you are on a strict budget or limited
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income you likely do not have a whole
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lot of wiggle room for unexpected
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expenses making you vulnerable to dead
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packing even just a few dollars away for
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each of your major sinking fund
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categories will provide the necessary
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safety net that may be harder to build
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up as one large lump sum start with $10
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a month towards the area that you think
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may be most likely to come up in the
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future are your car's tires starting to
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go
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you expecting any medical procedures in
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the next year is a holiday with expenses
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coming up soon these are the questions
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to ask yourself now while having an
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emergency fund in place is smart it is
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not wise to constantly have to dip into
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it for predictable not actual emergency
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expenses and then have to build your
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emergency fund back up this not only
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relies on your ability to quickly
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replenish your funds but also leaves you
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vulnerable during the moments after you
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have depleted your emergency fund
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if buildings sinking funds for every
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major need seems overwhelming start with
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just one and build out from there the
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two sinking funds that I suggest
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everyone have are for a car if you own a
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vehicle and for taxes if you expect to
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oh at the end of the year you can save
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yourself a lot of hassle when I was
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living in New York on a pretext salary
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of $40,000 a year and budgeting for the
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first time I failed to address Black
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Friday and Thanksgiving in my November
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budget that threw me off by a hundred
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and seventy three dollars an amount that
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can be extremely hard to make up on a
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tight income
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now that I have sinking funds in place I
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feel confident in my ability to address
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the financial obstacles that might come
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up on the road ahead the practice of
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creating these accounts has decreased my
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financial stress and increased my
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confidence and in just a matter of
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months
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