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  • Emily Friday

Breaking Down Financial Jargon | Part One: Budgets, Sinking Funds and More | Financial Education

No matter where you're currently at in your financial journey - whether you're just starting out and are learning everything there is to know, or you consider yourself a savvy finance expert, we believe there is always something to learn.

As #FinancialAwarenessMonth comes to a close, we've decided to make a pact with ourselves to continue spreading the message of the importance of financial education to encourage financial inclusion and better financial literacy for everyone.

After all, we all deserve to live a wealthy, happy life - and learning more about your finances is a great starting point to get there.

So, starting with the basics, our new series aims to break down the most popular financial jargon we see in the financial space. And if you'd like to learn more about these individual topics, we've also included handy links to extra guides so that you can continue reading more.

Here is Part One - covering everything from budgets to sinking funds and fun funds!

1) A "Budget"

Official definition:

Noun: an estimate of income and expenditure for a set period of time.

Our definition:

A budget is a plan that helps you decide how you will spend your money every month, week or payday.

Budgets help us ensure that we will have enough money to cover our expenses for the remainder of the month, and can be really helpful in helping us achieve our financial goals as they encourage us to spend within our means.

Without a budget, you may find that you run out of money quickly before your next paycheck (because you haven't accounted for all your potential outgoings e.g. bills).

Read more:

2) "Emergency Fund"

Official definition:

Noun: also known as a contingency fund, a personal budget set aside as a financial safety net for future mishaps or unexpected expenses.

Our definition:

An 'emergency fund' refers to a cash reserve that you set aside specifically for any unplanned expenses or financial emergencies.

An EF can be used for large or small unplanned bills that aren't usually a part of your monthly expenses and can include anything from car repairs, home repairs, medical expenses, job loss (e.g. from suddenly becoming too sick to work or redundancy) and much more.

If you've ever experienced the panic of a sudden expense that you didn't see coming and wondered how you're going to afford to pay it, you'll know all too well how important it is to have an Emergency Fund for peace of mind! In general, most people aim to save at least 3-6 months' worth of expenses for an EF, but this varies depending on your personal circumstances.

And the most important rule of an Emergency Fund? Don't dip into it unless there's an actual emergency!

Read more:

3) "Sinking Fund"

Official definition:

Noun: a fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset.

Our definition:

A sinking fund is a savings account dedicated to a specific expense or savings goal.

The main thing that sets apart a Sinking Fund from an Emergency Fund or regular savings account is that with a Sinking Fund, the expense is something you already know about/have planned for, e.g. a holiday abroad.

A sinking fund is a useful tool for helping us achieve our savings goals, as the idea is to add funds to them gradually over a set amount of time (usually with a deadline in mind). For example, if you want to take a trip next summer that will cost around £1,200, you can set up a sinking fund where you'll add £100 each month. By the end of the year, you'll have saved up the amount needed with minimum impact on your budget.

A much better alternative to paying for the holiday with a credit card or withdrawing the funds from your Emergency Fund!

Read more:

4) A "Fun Fund"

Official definition:

Noun: A fund of savings for personal and recreational expenses.

Our definition:

A Fun Fund refers to an amount of money you set aside every week or month specifically to spend on whatever makes you smile.

Similar to a Sinking Fund, a Fun Fund has the sole purpose of contributing financially to the things you love to spend your money on! Having a Fun Fund in place as you plan your budget for the upcoming month is a great way to minimise overspending, as the money is already accounted for (and you don't have to worry about running out before payday).

Using money from your Fun Fund to pay for the things that bring you joy also helps alleviate guilt from spending money on yourself, and can be used on anything from impromptu shopping trips, meals out, drinks with friends, cinema trips, or your fave takeaway coffee - the options are endless!

Read more:

What money jargon would you like to see us break down next?

Join the conversation on the ImageNPay Instagram and stay tuned for Part Two!


Ready to take the next step in reaching your financial goals by improving your spending habits?

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