money health weekly


Keep It Simple


"Our life is frittered away by detail...simplify, simplify."

-Henry David Thoreau


It's 2006 and I'm having lunch with a friend. He tells me that there's a website that allows me to track my net calories. I check it out and it's kind of cool. I can input all my food and it tracks those calories. I can create meals in the system so if I have the same meal over and over, I can tell it "ham sandwich" and it automatically inputs all the ingredients. I can enter activities and exercises, as well. 

What I like about it is that it brings a heightened level of awareness to my net daily calories. It keeps a log of days I am net positive and net negative. I see trends that help nudge me to make better choices. "I can have that burrito for lunch," I think, "but I'll have to work out all three days this weekend. Maybe I'll skip the burrito today." 

It worked great. 

Until it didn't. 

The thing is, as cool as it is, it takes a lot of work, it takes a lot of time...and a lot of honesty (those beers at happy had how many calories??). 

I learned an important lesson; complicated strategies work great for a while, but it takes too much will power to keep them going. The same is true for personal finance and savings.

success with simple versus complex proceseses

Sinking Funds

When it comes to our savings, there is one point of view that says we should create several accounts for different financial goals. These accounts are called sinking funds, because the balance tends to sink over time, and sometimes rises just to sink again. This is one account that is has one use of money in mind, and the money that goes into the account is only for that one purpose. 

The upside is that it makes it easier for us to force ourselves to save. If we have specific goals attached to our different savings dollars, then we can visualize ourselves using those dollars in the future and it nudges us into helping our future selves. This is one way to take advantage of our tendency to fall for an error called mental accounting

sinking fund demonstration

Many Accounts - Emergency Funds and Other Goals

With emergency funds, these proponents will say that only emergency fund dollars go into the account, and the account should never be used for anything other than emergencies. If you have something else you want to spend your money on you should open another account for that. And if you have a third use for your money, then you should have a third account open for that. 

The idea is to have specific goals tied to each account. If you name the account and attach pictures to it, it makes it easier to save. The emergency fund is for unknown expenses only - true emergencies. Every other account is for some known future expense. You can call these goals or guesses, but if you want to buy a lake home, open an account called "2010 Lake Home on Lake Riley." Find a picture of it and attach it somehow, either in the software you use or on a spreadsheet somewhere. 

The end result, is that you will have many accounts open, and many accounts to keep track of.

many different savings accounts

Many Sinking Funds

Instead of one sinking fund, you will have multiple sinking funds to keep track of, to contribute to, to take money from for these expenses, and to get statements for. In the short run it may help you contribute more by tricking you into saving more, but will it work for you in the long run? I'm not suggesting it will or won't; if it does work, do it. I'm suggesting focusing on a complex strategy of many accounts that tricks you misses the point. It's like aiming for one job at one company, instead of bettering yourself.