Planned Savings: One Account, Many Envelopes

Here is the failure mode of most budgets: the monthly plan works beautifully for exactly as long as the month is average. Then January arrives with the predial bill, or the car insurance renews, or December does what December does — and a “surprise” expense that was never a surprise blows a hole in the plan.

The fix is a system with an unglamorous name: sinking funds (I prefer “planned savings”). It’s the single highest-leverage upgrade you can make to a simple budget.

The known vs. the unknown

Two kinds of money need to live in your savings account, and they must not be confused:

• The emergency fund is for the unknown — job loss, a medical event, the transmission dying. You don’t know what or when; you only know that something, eventually.
• Sinking funds are for the known — expenses that are certain but not monthly. The insurance renewal has a date. Christmas is reliably in December. The car will need replacing around a known year. As Ramsey puts it: the sinking fund is for the known, the emergency fund is for the unknown.

The math of a sinking fund is one line:

A $9,000 insurance renewal due in six months, with $6,000 already set aside, costs you $500 a month. Spread across the year, annual bills stop being events at all.

One account, many envelopes

Here’s the crucial practical point: you do not need nine bank accounts. All of this money can sit in one savings account (or in CETES — more on that in Module 6). What you need is a ledger that remembers what each peso is for: this much is the emergency fund, this much is for the next car, this much belongs to the insurance renewal.

That ledger matters for a psychological reason. A single undifferentiated balance of $52,000 feels spendable — “we have plenty.” The same balance labeled as envelopes — $30,000 emergency, $8,300 vacation, $6,000 insurance, $4,000 Christmas — tells you the truth: the spendable slack is only what’s unallocated. The Planned Savings sheet in the downloadable planner has exactly this reconciliation: account balance minus allocated envelopes equals your real buffer, and that number should never go negative.

How big should the emergency fund be?

The standard guidance is 3–6 months of essential expenses — not income, expenses. Vanguard’s framing is the most useful I’ve seen, because it splits the problem in two:

• Spending shocks (car repair, medical bill): keep at least half a month of expenses or $2,000-equivalent, whichever is greater, in something instantly liquid.
• Income shocks (losing your job): build toward 3–6 months of expenses. This layer can sit somewhere that pays real interest, since you’ll touch it rarely.

Lean toward six months if your income is variable, you freelance, or one salary supports the household; three may be fine with two stable incomes. Build it before aggressive investing — a portfolio you’re forced to sell in a bad month at a bad price isn’t an emergency fund.

The Mexican sinking-fund calendar

The concept is universal; the calendar is local. For a typical household in Mexico, these are the recurring non-monthly items worth an envelope:

Try it live

Edit the funds, targets, and timelines. The total at the bottom is the number that becomes the “planned savings transfer” row of your monthly budget from Module 1.

The habit that makes it work

Treat the total monthly set-aside as a bill you owe your future self — transferred on payday, automatically, like rent. In the downloadable planner, the Planned Savings sheet computes each envelope’s monthly amount and feeds the total straight into the Budget sheet, so the system stays consistent by construction. When a bill comes due, you pay it from the envelope, feel nothing, and quietly re-start the fund for next year.

That’s the entire trick: annual expenses become boring. Boring is the goal.

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