When I started budgeting for the first time, I would get so frustrated because I felt like I was doing really well. But then, one big expense would come up and throw off my entire budget for the month.
Sometimes it was unexpected car repairs or a medical bill I didn’t expect. But other times it was expenses I knew about and just didn’t plan for, like my vehicle registration or my Amazon Prime subscription.
This went on for years until I found two simple tools to help me avoid these budget mishaps: sinking funds and emergency funds.
In this article, I’m explaining what a sinking fund and emergency fund are, when to use each one, and how to start building them. I promise these tools will totally change the way you budget!
What is an emergency fund?
An emergency fund is just what it sounds like — it’s a chunk of money set aside for emergencies. First, an emergency fund can be used for large and unexpected bills. But more importantly, it can replace your income for a short time if you unexpectedly lose your job.
Experts generally recommend having at least 3-6 months of expenses set aside in your emergency fund. That’s enough to give you some breathing room in case you lose your job.
In light of the pandemic, it’s more important than ever to have an emergency fund. And if it’s feasible for you to save more than 3-6 months of expenses, I definitely recommend it.
HOW TO BUILD AN EMERGENCY FUND
To build your emergency fund, start by figuring out just how much you want to save. And remember that saving 3-6 months of expenses doesn’t necessarily mean saving 3-6 months of income. If you lose your job, assume that you’ll cut out some of your discretionary spending. It really only needs to be 3-6 months of necessities.
Once you know how much you want to save, you can start transferring money into the account each month. I do recommend keeping this money in a separate savings account — preferably a high-yield savings account — so you’re never tempted to spend it.
When you aren’t currently saving, it feels impossible to get started. I started by setting up an automatic transfer from my checking account to my savings account. Start small – my initial transfers were only $50. But once you get into the habit and see the benefits of having a savings, you’ll start making more room in your budget.
What is a sinking fund?
A sinking fund is a saving strategy you can use to save all year long for expenses that come up only occasionally. For example, let’s say you spend $600 per year on Christmas. Instead of spending $600 out of your December budget and likely going way over budget for the month, you would save $50 per month throughout the entire year.
Sinking funds can be used for three types of expenses:
Planned expenses like your vehicle registration or Amazon Prime subscription
Unplanned expenses like car repairs
Savings goals like a vacation or the down payment on a new car
SINKING FUND CATEGORIES
There are so many categories you can make sinking funds for. And honestly, once you get the hang of it, you’ll be excited to set up more sinking funds. It’s kind of addicting! Here are some sinking fund examples:
Vehicle registration
Car repairs
Car insurance
Home repairs
Christmas
Medical bills
Pet expenses
Vacation
House downpayment
Association dues
Clothing
Car replacement
Weddings
Kid-related expenses
Tuition
Annual subscriptions
New appliances
HOW TO BUILD SINKING FUNDS
To build your sinking funds, start by figuring out how much you want to save for the entire year. For some categories, this will be easy. You can easily figure out how much you’ll need for your annual subscriptions or vehicle registration.
But it might be more challenging to figure out how much to save for unplanned unexpected like medical bills and car repairs. For those, you can page through your old bank statements to get a good idea of how much you spent last year. Once you know how much you want to save throughout the entire year, there’s a simple sinking fund formula you can use. Just divide the total amount you want to save per year by 12, and you know how much you’ll want to save each month.
Don’t feel overwhelmed by the sheer number of sinking funds you could start. Choose those that are most important to your life and come up most often, and you can build on them from there. I started with just a couple of sinking funds, and now I have nearly a dozen!
As for tracking your sinking funds, I love to use the app You Need a Budget (YNAB), which has a system designed to track these savings categories. Another tool you can use is Ally Bank, which has a high-yield savings account with “buckets” where you can allocate parts of your savings to certain savings categories.
Final Thoughts
Both your emergency fund and your sinking funds are an important part of your financial plan, but they have very different purposes. To make the most of your savings, I recommend using both! Your sinking funds will help you budget for expenses both planned and unplanned that come up only occasionally, while your emergency fund is there to protect you in case of a job loss.
I don’t know about you, but I almost always have more on my to-do list than I can possibly get done. I write my daily to-do list in my daily planner. I also have a running to-do list in Asana of tasks that haven’t made it onto my calendar yet.
And let me tell you, I’ve always had a really freaking hard time figuring out which of those tasks need to be at the top of the list.
I’ll admit that on quite a few occasions, this indecision has led to procrastination. It’s not that I don’t want to get to work. I just don’t know where to start!
The Eisenhower Matrix has become my favorite way to narrow down my to-do list and figure out which tasks really need my attention.
In this post, I’ll be sharing how you can use the Eisenhower Matrix (otherwise known as the Eisenhower Box) to accomplish your most important and urgent tasks every single day.
What is the Eisenhower Matrix?
The Eisenhower Matrix was made famous by Dwight Eisenhower, the 34th President of the United States. He was known for being incredibly productive, and the Eisenhower Matrix is the tool he used to manage his tasks.
The Eisenhower Matrix has four quadrants that break down your tasks into four categories:
Important and urgent
Important, but not urgent
Urgent, but not important
Neither important nor urgent
Here’s a look at what the Eisenhower Matrix looks like:
The Difference Between Urgent and Important
Before we dive into how the Eisenhower Matrix works, let’s first talk about the difference between urgent and important tasks.
Way too often, people confuse the two. We assume that anything that’s urgent must also be important. And even worse, we assume that tasks that aren’t urgent just aren’t important.
There’s a quote from President Eisenhower that says, “I have two kinds of problems: the urgent and the important. The urgent are not important, and the importantare never urgent.”
Most of the time, this is true!
Important tasks are those that allow us to be proactive toward achieving our goals, both personal and professional.
Urgent tasks, on the other hand, are reactive. We’re reacting to something in our lives that is demanding immediate attention, even when it may not be important enough to warrant that attention.
Knowing the difference between these two is the true goal of the Eisenhower Matrix.
How the Eisenhower Matrix Works
IMPORTANT AND URGENT
The first box of the matrix is for tasks that are both important and urgent. Not only are they time-sensitive, but they’ll also likely have a significant impact in the long run.
These are the tasks that should be moved to the top of your to-do list. In your business, they would probably be the big money-making tasks such as closing a sale.
Personal emergencies would also be both important and urgent and would immediately become your top priority.
The tasks that go in this quadrant are probably also energy and time-intensive tasks. They’re the ones you procrastinate starting because you know how much work they’ll be, but they’re totally necessary because they are what move the needle.
In my business, tasks that are both important and urgent include articles that have upcoming deadlines.
When I’m crafting my schedule every day, I always try to make sure these are the tasks I work on first thing in the morning. That is the time of day I have the most energy and motivation, so I know they’ll get my best work then.
I would never recommend saving these tasks for the end of the day because if something comes up that pushes you off course, you won’t get them done.
IMPORTANT, NOT URGENT
The tasks in the second quadrant of the matrix are important but not necessarily urgent. These tasks will certainly have a big impact in the long run, but they don’t need to be done immediately.
In your career, this would include the time you invested in getting your degree. In your business, this would be your long-term business strategy and future product launches.
In your personal life, maintaining relationships is important. Making time to spend with those you love may not be time-sensitive, but it certainly has a great impact in the long run.
This quadrant would also include the things you do to maintain your health. Exercising and healthy eating may not be urgent, and often they get moved to the bottom of our to-do lists, but in the long run, they’re incredibly important.
The tasks that fall into this category often get put off in favor of urgent tasks. But in the long-run, these are the tasks that are going to help you reach your goals – so make time for them! If they aren’t on your calendar, add them.
I always make sure these tasks are scheduled on my calendar ahead of time, that way I’m not likely to set them aside in favor of something else.
For example, I schedule my workouts on the calendar one week at a time. When the time comes to work out, I’m pretty unlikely to talk myself out of it because there’s nothing else I should be working on during that time. I’ve made a commitment to myself and I’m going to keep it.
URGENT, NOT IMPORTANT
The tasks in the third quadrant are urgent, but they aren’t important. However, they are mistaken for being important tasks way too often. This quadrant includes tasks such as answering phone calls and responding to emails.
People way too often think that because these tasks are “urgent,” they have to do them right away. Well, I’ve got good news – you don’t have to do them right away!
Think about phone calls. When the phone rings, it’s urgent. You only have a limited amount of time to answer it before the call gets sent to voicemail.
But how often do you get a phone call that you would consider important? For me, the answer is almost never. So I don’t answer the phone when I’m working on something else.
The exception would be if my fiance or a family member is calling during a time I know they would only be calling in the case of an emergency – then it’s important as well as urgent!
These tasks can be scheduled for later. But even better, they can be delegated.
In the example of the phone calls, you’re “delegating” that task to your voicemail. In other cases, it might be an actual person you’re delegating to.
NEITHER IMPORTANT NOR URGENT
Let’s be honest, most of us fill our calendars with a lot of things that aren’t necessary as well. Some of these we do as a form of laziness or procrastination, and some we do because we genuinely think they’re important, but they really aren’t.
Things like watching TV and scrolling through social media are activities we know aren’t important or urgent, but we spend a lot of time on them anyway. I’m not saying you should never do these things. Having balance in life is important, and it’s fine if those are activities you want to enjoy in your free time (I certainly do!) – but don’t use them as a crutch for laziness or productivity during work time.
There are also some activities that fall into this quadrant that you might think you need to be doing, but when you think about it, they really aren’t important or urgent.
When I started my business, there were a lot of tasks I made time for because I read they were things I “should” be doing. But they didn’t benefit my business at all or bring me any closer to my goals. By identifying the tasks that weren’t having an impact, I was able to eliminate them from my to-do list.
The good news is you’ll be saving yourself a lot of time by getting rid of these tasks.
How to Use the Eisenhower Matrix in Your Own Life
Hopefully, you’re reading this and thinking the Eisenhower Matrix sounds like exactly what you need to finally organize your freaking to-do list. But how do you go about using it in your own life? Here are some practical tips for applying the Eisenhower Matrix to your tasks.
1. Make a list of every project and activity you have to do. Try to be super comprehensive, even for tasks that don’t seem relevant. Anything that takes up your time is relevant here! Include tasks for both your professional and personal life.
2. Assign each task to a quadrant on the Eisenhower Matrix. You can just use paper and pencil to sort them. Be honest with yourself to avoid elevating the importance of any task. A good way to do this is to honestly ask yourself, “What is the immediate result of this task?” If the immediate result is your child being fed when they need to be or closing a sale in your business, that task is pretty darn urgent and important!
3. Cross off every task in Quadrant 4. These tasks are neither urgent nor important, and you should only be giving them your energy during downtime.
4. Create a plan for tasks in Quadrant 3. Is there a person, app, service, etc., that can do this task for you?
5. Pull out your calendar and schedule your tasks for the week. Tasks that you put in Quadrants 1 and 2 should be added right to your calendar. Scheduling them for a specific time ensures they actually get done!
6. Eliminate distractions. When you’re working on the tasks on your calendar, put everything else away. Focus is the key to successfully getting it all done!
7. Repeat with new tasks. Any time a new task ends up on your desk or in your inbox, figure out where in the Eisenhower Matrix it belongs and act accordingly. You can seriously use this matrix for everything!
Why the Eisenhower Matrix Works
The best way to reach your goals is to ensure you’re focusing your time on the tasks that are truly going to move you forward and have an impact.
The Eisenhower Matrix works so well because it forces you to identify which tasks you should be focusing on and which are a waste of time.
I have always found myself procrastinating by spending too much time on tasks that are either urgent but not important or even those that aren’t urgent or important. Using this method has really forced me to get honest with myself and move those tasks to the bottom of the list in favor of the more high-impact tasks.
Pretty often, I find that the reason I’m not focusing on important tasks is fear. I’m afraid of going for something big and failing. I’m afraid of putting something out, whether it be a new blog post or a digital product, and being judged.
Using the Eisenhower Matrix has really forced me to take a hard look at those important tasks and take away every other excuse for finally doing them.
Final Thoughts
If you’re not as productive as you’d like to be, the Eisenhower Matrix is the perfect tool to help you take an honest look at your to-do list and focus on the most important tasks.
And by using the Eisenhower Matrix on a regular basis, you’ll ensure that your most important and urgent tasks are getting done every single day.
Sure, it will be hard at first. It’s not easy to admit you’ve been spending time on tasks that aren’t worth your attention! But once you get past the hard part, you’ll eliminate so much wasted time and energy and find that you’re getting more done in less time and achieving all of your goals!
Just a few years ago, I was one of those people who would set a few arbitrary new year’s resolutions on January 1, only to never think about them again.
That’s how most of us set goals. We think of a goal or something we might want to accomplish in the future. Then we either hope it happens, or we forget about it altogether.
But if you really want to achieve your goals, you’re going to have to do more. Achieving your goals takes time, effort, and planning. You can’t achieve goals just by hoping they happen someday. You have to take action.
In this post, I’m going to lay out the steps you can follow to set goals you’ll actually achieve and plan your best year ever.
How to Set Goals and Plan Your Best Year Ever
STEP 1: REFLECT
You can’t set goals for your future until you take some time to reflect on your past and where you are right now.
I want you to grab a notebook or open a word document, and write down the following life categories:
If there are any major categories in your life that aren’t represented here, such as religion, parenthood, etc., feel free to add those as well.
Next, go through each category and write down where you are NOW.
Be honest with yourself about the good and bad in your life for each of these categories.
STEP 2: ENVISION YOUR FUTURE
Once you’ve thought about where you are right now, take a look at each of those life categories and envision what you want them to look like in the future.
You can be as broad or as specific as you’d like. In this goal-setting exercise, we’re just envisioning our future, not choosing a big goal yet.
For example, do you see yourself getting married? Having kids?
Maybe you hope to own your own business someday or have a corporate career trajectory in mind.
I love doing this exercise right after Step 1 because it’s SO eye-opening. It really shows you the discrepancies between where you are now and where you want to be. And it REALLY helps with setting goals.
STEP 3: SET SMARTER GOALS
Now that you’ve thought about what you want your future to look like in all areas of your life, I want you to focus on ONE of those areas to focus on right now.
Yep, just one. If you set a bunch of BIG goals for yourself, you’ll be unfocused and will have a really difficult time reaching them all.
By setting just ONE big goal, you can give it your full focus and really ensure you accomplish it.
When it comes to setting goals, make sure to make it SMARTER:
Specific: The more specific your goals, the better. Don’t just set a goal of earning money with your side hustle. Set a goal of earning $1,000/month from your side hustle within the first year (for example).
Measurable: The progress of this goal can be easily tracked. $1,000/month is very specific – you’ll know for sure if you’ve reached it or not, as well as if you’re on track to reach it. And once you know how much you want to make per month, you know what your daily and weekly goals should be.
Attainable: While setting your goals high is awesome, make sure it’s something you can actually accomplish. Consider what will be required of you to complete this goal, and carefully consider whether you have that to give.
Relevant: Make sure your goal is in harmony with your core values and what you’re working toward in life. If your ultimate dream is to work from home full-time, then setting a goal of $1,000/month in the first year is awesome because you’re totally moving in the right direction.
Time Bound: Don’t make the time frame for reaching your goals open-ended. We tend to take as long to accomplish a task as we are allowed. If your goals are completely open-ended, they may never seem urgent enough to get to. As you can see, we set a time frame of one year for the goal we’re using as an example.
Exciting: Let’s be real – it’s going to be a lot easier to make time to work on goals that excite and inspire you. Emotions are a big factor when it comes to goal-setting, and you’re far more likely to reach for things that excite you.
Routine Bound: I firmly believe that creating routines and habits is the absolute best way to make changes in your life. Incorporating your goal into your daily routine ensures you’re making time for it and gives you a MUCH better chance of reaching it. For example, you might say that every evening you get home from work at 6 pm and work on your online business until 8 pm. It becomes a daily routine and ensures you’re putting in the time to reach that $1,000/month goal.
STEP 4: BREAK DOWN YOUR GOALS
Now that we’ve picked our big goal, it’s time to break it down. Looking at your goal as one big, huge step is going to be super overwhelming. You’re probably going to get discouraged pretty quickly because you just don’t know where to start.
When I’m planning the action steps for my goals, I like to start by breaking the goal down into categories or mini goals. Basically, what big-picture things need to get done in order for you to reach your big goal?
I do this by breaking down my big goal into categories. Then I break those categories, or mini-goals, down into smaller chunks. And then break those down into smaller chunks. And I just keep breaking them down into smaller and smaller pieces until everything leads to tiny, bite-size action items that can be put on your to-do list.
Once you’ve done that, get those action items scheduled on your calendar or to-do list ASAP.
Depending on the size of your goal, you might be talking about 90 days of action items, you might be talking about one year of action items, or you might be talking about even more. Just make sure you know what that time frame is (remember the T in SMARTER stands for Time-Bound).
STEP 5: CREATE POSITIVE HABITS
Setting goals is the fun part. It’s the follow-through that tends to get a bit rocky. The absolute best way to follow through on your goals and make time to work toward them every day is to form positive habits and daily routines that incorporate your goal.
Let’s say your goal is fitness related. Maybe you want to run a marathon or lose a certain amount of weight. By working fitness into your daily routine and making it a habit, you won’t have to remind yourself every day or try to talk yourself into it. You’ll just do it.
Here are a few things to keep in mind to REALLY make sure the habit sticks:
Focus on ONE habit at a time. Implementing a new habit is really hard. Implementing a bunch at once is damn near impossible.
Smart SMALL. If you want to start incorporating fitness into your life but NEVER work out right now, don’t try to start working out for an hour every single day. Start small and work your way up.
Anchor your new habit to an existing habit. Your day is already filled with habits. Anchor your new habit to one of those existing ones to make SURE it gets done.
Schedule it. A new habit might be hard to remember the first few weeks, so schedule it or set a reminder on your phone.
STEP 6: CREATE ACCOUNTABILITY
I tend to be a little overzealous when it comes to goal setting. And when I say a little overzealous, I mean a lot overzealous. But for years and years, I found that I would set these big lofty goals, and then they would fall through the cracks.
Sometimes I would work toward them for a while and then lose my motivation. Or worse, I would lose my motivation pretty much right away and forget all about them.
The best way I’ve found to stop this from happening is to create a system for accountability right away.
So how do we go about creating accountability? Here are some ways to do just that:
Write down your goal. Seriously, this is a step most people DON’T take.
Share your goal. Pick just one person to share your goal with who can help keep you accountable, whether that be a partner, a friend, a parent, etc.
Track your progress. Remember that SMARTER goals are MEASURABLE, meaning you can measure their progress. Find a way to do this by using a notebook, journal, spreadsheet, etc.
Final Thoughts
As with literally anything, advice is only as good as the amount of time and effort you’re willing to put into it.
But if you are truly diligent about implementing these steps and following through with the tasks you’ve put on your calendar, you are sure to reach your big goal this year.
When it comes to life hacks, the Pareto Principle (also known as the 80/20 rule) is one that is seriously overlooked but can have a serious impact on your life.
So what is the 80/20 rule? Founded by economist Vilfredo Pareto, the rule says that 80% of your results will come from 20% of your actions. Pareto was only using the rule for a few specific situations at the time, but it’s since been shown that it can apply to just about anything.
And you might be surprised that the 80/20 rule can even help you to improve your personal finances, as we’ll explain in this article.
What is the 80/20 Rule?
The 80/20 rule — formally known as the Pareto Principle — is a rule that states that 20% of your inputs lead to 80% of your outputs.
The principle dates back to the late 19th century with Pareto, an Italian economist. He noticed that 20% of the pea plants in his garden resulted in 80% of the pea pods. More importantly, he found the same pattern could apply to the country’s wealth distribution.
In the years since Pareto discovered this principle, it’s been applied to many other areas of life, from business to law enforcement to healthcare.
Here are a few examples of how the 80/20 rule can apply to your life:
Your to-do list: You might find that 20% of the tasks on your to-do list contribute to 80% of your productivity, while the other 80% of tasks contribute to just 20% of your productivity.
Your habits: The majority of our days are made up of habits, and you might find that just 20% of your habits are responsible for 80% of your results, whether those habits and results are good or bad.
Your relationships: Some of the relationships in your life are more important than others. I try to maximize the 20% of my relationships that bring me the most joy and are most important to me.
Your possessions: Chances are that a few of the possession in your home are the homes you use most often, while most of your possessions aren’t used on a daily basis.
How to apply the 80/20 rule to your finances
In addition to the other areas of your life where the 80/20 rule can apply, there are a few areas of your finances where it can plan an important role.
YOUR BUDGET
Many people apply the 80/20 rule to their budget as a way to allocate their spending. This budgeting method combines the Pareto Principle with the 50/30/20 budgeting method made famous by Elizabeth Warren.
In the 50/30/20 budget, you spend 50% of your income on needs, 30% on wants, and 20% on savings. The 80/20 budget is a simpler version of it.
Using the 80/20 budgeting method, 80% of your income goes toward monthly expenses and spending, while the other 20% goes toward savings and investments.
Of course, the 80/20 budget rule won’t work for everyone. If you’re working toward a specific financial goal, like paying off debt or early retirement, you might put more than 20% of your income toward your goal. Meanwhile, someone with a low income or in a high-cost-of-living area may need to spend more than 80% of their income on monthly expenses and spending.
If nothing else, this budgeting method is ideal for those who aren’t sure how much of their money they should be spending versus saving and want a bit of guidance.
YOUR INVESTMENT PORTFOLIO
Another area where the 80/20 rule can apply to your finances is your investment portfolio. In this case, many investors will find that roughly 20% of their investment holdings will lead to about 80% of their growth.
While these percentages won’t be exact, the general rule applies that a small number of your investments will result in the most growth. But because you can’t know ahead of time which those investments will be, it’s important to have a well-diversified portfolio.
We can see evidence of this by looking at weighted index funds like total stock market funds or S&P 500 funds. A handful of large companies make up most of the portfolio, even though there are hundreds or thousands of companies in those funds.
YOUR BUSINESS
Another area of your finances where the 80/20 rule can apply is in your business. First, many businesses find that a small number of their products are responsible for the majority of their revenue.
Similarly, many businesses find that a small number of customers or clients are responsible for a majority of their business. I can attest to this one myself. A handful of my freelance clients are responsible for the majority of my income, while the rest of my clients bring in smaller (but still important) income each month.
A final application of the 80/20 rule in business applies to where you spend your time. Spend some time paying attention to the tasks you’re working on throughout the day. You may find that a small number of tasks are directly responsible for the majority of your income, while the majority of your tasks don’t really result in any money.
Final Thoughts
It’s amazing how changing or maximizing a minority of the actions you take in a day can have such a serious impact on your results.
Now that you’ve seen some examples of the 80/20 rule at work, it’s easy to see how it can apply to your own life and not just to your personal finances. You may find examples in your relationships, career, personal development, home, and more.
The key is identifying those actions that are responsible for the greatest results and finding ways to maximize or go all in on them.
