Putting money aside is a difficult task for many of us living paycheck to paycheck. Avoid using cash advances or relying on credit cards for emergencies is great advice, but what does one do when there are impending bills which need to be paid? The answer seems so obvious when not in a vulnerable financial situation. Save money to avoid third party cash reliance.
Use money from savings to prevent the need for cash advances.
Most people have a savings account; there just isn’t much in it. Why is that? For those of us who live paycheck to paycheck, we scrape together as much as we can afford each month and place it in our savings. Then something comes up and we take it right back out to help support the cost of an unexpected cost. It is our emergency money account, not a savings account. There is a difference between the two accounts.
- A sinking fund is a type of savings account which is used to help take care of emergency costs. Sinking funds in its individual account or carefully account for it within a typical savings account. The money is set aside primarily for budget support. It is money earmarked to help with unexpected costs. A sinking fund in its own account or carefully accounted for within a typical savings account. A goal of $1000 is typical for a sinking fund. Once money is used, rebuild the funds.
- A savings account is an account which continues to grow. This account is used for those extreme emergencies like losing a job or moving expenses. Financial advisers suggest building a savings to cover six months of cost of living expenses. Using this money as your sinking fund will keep the goal from being met. When you create your budget, the money you save for this account gets placed in its own category and is not to be touched.
The longer you can save the better. When it comes to the sinking fund, the more you can put in and the faster used money is replaced, the better off your financial situation will remain. Keep this money accessible which is easily transferred into a checking account. You will avoid all those fees and high interest rate charges for cash advances when you use your own money to support the budget. If you have infrequent expenses which are tough pay for, increase the amount of the sinking fund and plan ahead accordingly. Replacing eye glasses or vehicle tires are expenses which are often too pricey for a monthly budget. Most people would use credit cards if they have them to purchase these or similar emergency costs. Break this cost down into monthly amounts geared towards the sinking fund. When the time comes to purchase your new prescription glasses, you will not have to worry about credit card availability or paying extra in cash advance fees. If you are using one account for both purposes, document well. Use a notebook or computer spreadsheet to document money used and money saved.
