Tariff Uncertainty After Supreme Court Decision and Budgeting With Sinking Funds

Summary

Podcast Summary: NerdWallet’s Smart Money Podcast

Episode: Tariff Uncertainty After Supreme Court Decision and Budgeting With Sinking Funds
Date: February 26, 2026
Hosts: Sean Pyles, CFP®; Elizabeth Ayola
Featured Guest: Lourdes Casanova (Senior Lecturer, Cornell University S.C. Johnson College of Business)

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Main Theme

This episode explores the aftermath of a major Supreme Court decision limiting the U.S. president’s authority to impose broad tariffs, examining what the resulting uncertainty means for American wallets and global trade. The hosts also address a listener’s question about how to budget effectively using sinking funds, sharing personal tips and experiences with segmented savings.

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1. Money News Roundup: Tariff Uncertainty After Supreme Court Ruling

(Begins ~01:40)

Background

• Context: Following President Trump’s 2025 policy introducing reciprocal tariffs, the Supreme Court ruled he couldn’t use the 1977 International Emergency Economic Powers Act ("IEEPA") to authorize these sweeping levies.
• Result: Legal confusion and shifting strategies, as Trump swiftly moved to hike global tariffs to 10%, then 15%.

Interview with Lourdes Casanova (~03:15 – 15:08)

Key Discussion Points

• How Could Tariffs Go Up After a Ban?

  • Lourdes: The rapid tariff increases were technically possible due to other legal avenues, though specifics are unclear. The speed and nature of these changes created widespread confusion, especially among international partners.
    • “So there is confusion... the European Union lost trust in the system. So the new negotiation was very, very hard.” (Lourdes Casanova, 04:26)

• Global Reactions:

  • EU demanded the U.S. honor previous trade agreements; major partners like Canada and Mexico (under USMCA) felt insulated but wary, with upcoming negotiations increasing anxiety. Countries like China, India, and Brazil are recalibrating their own strategies.
    • “Canada and Mexico are under USMCA, but this agreement needs renegotiation... Both trading partners are worried.” (05:21)

• Sector Tariffs & Security Policies:

  • Existing tariffs on sectors like steel and aluminum remain in place for security reasons; the new hike stacks atop these.
  • The business environment is now extremely complex due to overlapping regulations.

• Intent and Impact of Tariffs:

  • Lourdes notes that the policy revived discussions about deindustrialization and reshoring manufacturing—an aim partly realized as the U.S. became the leading destination for greenfield manufacturing investment in 2025.
    • “One could argue that these tariffs somehow may have worked because the trend was reversed of losing manufacturing jobs.” (Lourdes, 07:05)
  • Local impacts are visible, e.g. upstate NY communities needing manufacturing jobs.

• Shift in Trade Policy:

  • The ruling signals a turning point, with the “open global world” consensus of the ’90s now in question.
    • “Tariffs have no way back. These discussions are on the table... industrial policy is back and tariffs are back.” (Lourdes, 07:56)
  • Allies such as the EU and UK are disturbed; “trust” is badly damaged.

• Market Reactions:

  • Immediate volatility: dollar and stock markets fell post-ruling, then rebounded, especially due to AI-driven optimism. Dollar weakened against the euro.
    • “I’m the panicky type, so I wanted to sell absolutely everything. This is the end of the world. And so many Americans’ 401k is dependent on the stock market.” (Lourdes, 09:50)
  • Inflation has remained moderate (2.4%).

• Investor Confidence:

  • Despite shaken trust, the U.S. stock market remains dominant and broad, still attracting investment relative to volatile emerging markets.

• Tariff Refunds & Consumer Impact:

  • Some companies (FedEx, Revlon, Costco) suing for tariff refunds, but no mechanism to pass refunds to consumers.
    • “If companies successfully secure refunds, there’s also no mechanism to pass that back to consumers, right?” (Ana, 12:44)
  • Trump floated the possibility of rebate checks, but details are unclear.

• Larger Context:

  • Global shift toward government intervention (industrial policies, nationalizations), referencing China's success with state capitalism.
    • “The success of China was for everybody, mind boggling... everybody’s thinking maybe we were wrong and maybe the government needs to have a place not only regulating but intervening...” (Lourdes, 13:20)

• Everyday Consumer Impact:

  • Tariffs have effectively increased household costs, but not as much as feared. A Harvard study cited additional costs of ~$1000 per person.
    • “This Harvard study says $1,000, we all have paid $1,000 more. If we look at inflation ... 2.4%.” (Lourdes, 14:01)
  • Uncertainty will continue to affect prices, outlook, and policies.

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2. Listener Q&A: Budgeting With Sinking Funds

(Begins ~17:58)

Listener Question

John asks: “What is a good percentage of my income to put toward sinking funds after I’m investing 15% into my 401k?”

What Is a Sinking Fund? (~18:14)

• Definition: A sinking fund (or savings bucket) is a dedicated account for each savings goal (e.g., new car, vacation, insurance premiums).

• Benefits:

  • Increased organization
  • Motivation by visualizing progress per goal
  • Avoids the “nebulous wad of cash” problem

• Debate About Mental Accounting:

  • Sean: “A lot of personal finance is setting up little tricks for yourself ... even if it’s just mental accounting.”
    • (19:23)

• Bank Setup:

  • Many banks let you label sub-accounts for easy tracking.

Notable Quote

“For people who struggle with organization or ... want their financial goals to be more visible, sinking funds can be helpful.”
— Elizabeth Ayola (19:42)

How to Set Up & Manage Sinking Funds

• Where to Stash?
  • High-yield savings accounts ideal for short- or medium-term goals
  • If your time horizon is 5+ years, consider investing (22:00)
  • Direct automated deposits are key to consistency (Sean, 21:35)

Notable Quote

“At certain points in my life I’ve had around 10 different accounts and people say that is bananas.”
— Sean Pyles (21:19)

• Managing Multiple Accounts:
  • Both hosts keep most funds at one online bank for simplicity, but it’s okay to use multiple banks if that fits your style.

Choosing a Savings Account

• Interest Rate Shopping:
  • Both hosts use NerdWallet’s rate roundups to find the best options.
  • “Go where the money resides ... highest interest rate.” — Elizabeth (24:11)

Emergency Fund Considerations

• How Much:
  • 3-6 months of income recommended (25:46)
  • Single-income households: aim toward 6 months
  • Hosts acknowledge most people build this over years; don’t stress if you aren’t there yet
    • “Even $1,000 can go pretty far preventing you from pulling out that credit card when your car breaks down.” (Sean, 26:45)
  • Emergency fund amounts will ebb and flow as crises arise.

How Much to Save in Sinking Funds?

• 50/30/20 Framework:
  • 50% needs, 30% wants, 20% debt/savings (including retirement + sinking funds)
    • Example: If John invests 15% in 401(k), remaining 5% of “savings” bucket could be for sinking funds (28:19)
• Employer Match Reminder:
  • Employer match counts toward total retirement savings percentage (Sean, 28:29)
• Prioritization:
  • Build a starter emergency fund first, then increase retirement investing, then expand sinking fund contributions

Categorizing Sinking Funds

• Non-Negotiables:
  • Ongoing, recurring obligations (childcare, insurance, car repairs)
• Lifestyle:
  • Vacations, upgrades, “nice-to-haves”

Notable Quote

“Distinguishing between negotiable and nonnegotiable sinking funds is such a personal matter.”
— Sean Pyles (30:49)

Hosts’ Personal Sinking Fund Strategies

• Sean’s Setup: 6-8 sinking funds (emergency, taxes, fun, car, home maintenance, student loans, checking, etc.). Sinking funds change with life’s evolving goals.

• Elizabeth’s Setup:

  • Just started; main goal is summer camp/childcare, using a Dependent Care FSA (not a classic sinking fund, but serves same purpose).
  • Plans to open a vacation/birthday sinking fund soon.
    • “Every summer, I spend at least $2,500... just for the summer.” — Elizabeth (33:39)

• Common Obstacles:

  • Administrative hurdles (gathering account info, setting up deposits) can delay action.

Notable Moments

“Let me know if you want an accountability buddy. I’m happy to keep pestering you about this.”
— Sean Pyles (37:51)

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3. Memorable Quotes & Moments

• On Tariffs:

  • “Tariffs have no way back. These discussions are on the table…” (Lourdes Casanova, 07:55)
  • “Trust, for sure, has been lost.” (Lourdes, 11:13)

• On Sinking Funds and Financial Psychology:

  • “I want the money that’s coming for my student loans to be in its own account, to quarantine it from the purity of the rest of my money.” (Sean, 32:36)
  • “Doesn’t it just feel good to see all that cash in your account? You just don’t want it to go down!” (Elizabeth, 27:50)

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4. Timestamps for Important Segments

• Tariff discussion and Supreme Court decision: 1:40 – 15:08
• Listener sinking fund question introduction: 17:58
• What are sinking funds? 18:14–20:24
• How to structure and automate sinking funds: 21:19–23:51
• Choosing a bank for sinking funds: 24:11–25:29
• Emergency funds (how much, how to save): 25:30–27:06
• 50/30/20 budgeting and prioritization: 28:19–29:36
• Distinguishing between types of sinking funds: 30:03–31:16
• Hosts’ personal sinking fund breakdowns: 31:26–36:32
• Practical obstacles to starting sinking funds: 36:32–37:51

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5. Actionable Takeaways

• Expect continued volatility and unpredictability regarding U.S. tariffs and trade agreements; be wary of price changes.
• Sinking funds are effective for organizing savings goals, reducing stress, and preparing for both needs and wants.
• Automate sinking fund contributions via direct deposit for greatest success.
• Shop for high-yield savings rates and prioritize ease of account management to ensure you stick with your plan.
• Don't be discouraged by slow progress on emergency funds—small steps count.

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6. Next Episode Preview

• The next episode will tackle “how to accurately track your expenses.”

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This summary covers all major discussion points and captures the episode’s actionable advice and engaging, accessible tone. For personal finance questions, listeners are encouraged to contact the Nerd Hotline at 901-730-6373 or email [e-mail].

Transcript

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[Sean Pyles]

tariffs, they're still here, but in a different way. Does that affect your wallet and bank account? Likely. How? Let's find out. Welcome to NerdWallet's Smart Money podcast where you send us your money questions and and we answer them with the help of our genius nerds. I'm Sean Pyles.

[Elizabeth Ayola]

And I'm Elizabeth Ayola. Later this episode we'll be discussing sinking funds, which is one of Sean's favorite topics. But first, our weekly Money News roundup where we break down the latest in the world of finance to help you be smarter with your money. Last year we saw President Trump roll out sweeping so called reciprocal tariffs on imports from countries around the world. He said the levies were necessary to fight unfair trade practices and and also to protect the U.S. last week, the Supreme Court dealt a blow to that strategy. And our news colleague Ana Hoski is here to talk more about what happened. Hey, Ana.

[Ana Hoski]

Hey, Elizabeth And Sean. Yeah. Soon after Trump announced his tariffs last year, the legal fight began. Companies and states argued that Trump didn't have the authority to impose sweeping tariffs under the rationale that he was using. And that's the 1977 International Emergency Economic Powers act, which rolls right off the tongue, but it's usually known as ipa. Trump said that it gave him the broad authority to enact tariffs during a national emergency. And as we saw last week, the Supreme Court didn't really agree with that. The ruling opened the door to a lot of uncertainty around tariffs. So to unpack what happens next, today I'm joined by Lourdes Casanova, senior lecturer at Cornell University's S.C. johnson College of Business. Lourdes, welcome to Smart Money.

[Lourdes Casanova]

Thank you for inviting me.

[Ana Hoski]

So after the court said Trump can't use IPA to justify these tariffs, he pretty quickly pivoted and said he would raise global levies to 10%, and then the he raised that level to 15%. So, first off, can you talk a little bit about how he was able to do that if the court just ruled that he couldn't?

[Lourdes Casanova]

I don't know the exact legalities of how he did it, but it was possible because of some legality somehow. And so the first day was 10%, and the next day 15%. So what happened? A lot of confusion, because in the meanwhile, after Liberation Day, he. Some countries, for instance, the European Union had negotiated one trade agreement that everybody knew what to do. And then this new rule, this new tariff, was useless. So then the first thing that the European Union did was to please request President Trump to be faithful to what he had signed after a Liberation Day. So there is confusion because in some countries, for instance, China, Brazil, or India, the current tariffs were worse. And for some, again, the most important trade partner, the most important investor, the European Union, was much worse for them. So a lot of confusion. We don't know what will happen. The stock market went up, down, the dollar a little bit down, a little bit up. So you don't know how to react because you don't know what is going to happen. And a very important question as well. Trust. So again, the European Union lost trust in the system. So the new negotiation was very, very hard. And once the negotiation was there, okay, the Supreme Court says something, and President Trump says something else. So you don't know what is going to happen.

[Ana Hoski]

Right. And any sense of how other Major trading partners, Canada, Mexico responded to this new round.

[Lourdes Casanova]

Yeah, Very important question. Canada and Mexico are under the ruling of the usmca. Somehow they are sealed because this agreement is enforced. This agreement needs to be renegotiated this year. So both trading partners are worried and Canada is going to negotiate with China, with India, Mexico also getting closer to China. European Union rethinking the previous problems that they had with China and thinking that may maybe they should renegotiate or reconsider what was before the trade war between European Union and China.

[Ana Hoski]

So the targeted tariffs like steel and aluminum, they're not impacted by the ruling. Right. But the 15% increase is going to be added. On top of those tariffs, there are

[Lourdes Casanova]

many other tariffs that are because of security reasons, and those are still valid. So those specific tariffs by sectors continue. So the situation is extremely complex and a lot of new negotiations will take place. And I hope that they are resolved soon. Otherwise, we are again in an impasse. Let me play for one minute devil's advocate. Let's remember that what had happened in this country was a deindustrialization. One could argue manufacturing need to be back in the US or not. That's a very important question that is not resolved. But what is the idea with the tariffs? The idea with the tariffs is to force companies to bring back manufacturing. And Interestingly enough, in 2025, us again was the receptor of most investment, what is called greenfield investments, so investments in manufacturing. So one could argue that these tariffs somehow may have worked because the trend was reverse of losing manufacturing jobs and living in Ithaca, upstate New York, let me tell you, needs manufacturing jobs back because it's a very depressed area, not enough jobs. And you travel by bus from Ithaca to New York and you can see the need that this country has to bring jobs back.

[Ana Hoski]

Now, do you see this ruling as signaling a turning point in US Trade policy and executive limits as well? Or does it seem like more of a temporary bump in the road for the Trump administration?

[Lourdes Casanova]

My opinion is that Trump administration, they want to continue this path and tariffs have no way back. These discussions are on the table. They were not. We all believe since the 90s that open global world will be good for everybody. And what has happened is that US And Europe have lost a lot of manufacturing jobs. And now the discussion is that they want back. For a while we decided, you know what, it doesn't matter. We are strong in finance, in patents, in innovation. It doesn't matter if the iPhone is manufactured in Cupertino or Foxconn is the one Manufacturing in China and Taiwan, Guess what? Now we realize that it does matter because the number of top companies manufacturing smartphones, if you look at the five or the six biggest ones, only Apple is there. All the others are Chinese or Korean, Samsung, Oppo, Xiaomi, of course, Huawei, et cetera. And that's why one way or the other, industrial policy is back and tariffs are back. But yes, it has to be done in a different way because you have to trust and you have to have stability in the rules, otherwise how can you adjust? So then this completely, what happened in the last days has been very disturbing for the allies of this country, definitely for European Union, for UK and beneficial, strangely enough, for China, India, Brazil.

[Ana Hoski]

So how the US and global markets reacted to this most recent trade policy chaos? They've had a lot to react to in the last year.

[Lourdes Casanova]

Since Liberation Day last year, the dollar has started to go down. The dollar is so important, it's so central in this economy on innovation, technology, of course, but the dollar is very central. And then because of this beginning of cracking into the trust, the dollar started going down. And President Trump said, I don't mind the dollar going down because there are many other variables. What about the huge debt of this country? So then if you devalue your currency, many different factors. So the dollar went down, the stock market first went down, and I'm the panicky type, so I wanted to sell absolutely everything. This is the end of the world. And so many Americans, 401k is dependent on the stock market. So at first in April, a disaster. But since then, as you know, there is, okay, some, they call it a bubble because of AI, because of other things, the markets have recovered. And the dollar, with respect to the euro, that is the second most important currency in the world, has gone down to 1.18. But let's remember that the dollar with respect to the euro, so one euro is 1.$18. But let's remember when the global financial crisis in 2008, that affected less Europe, at first the dollar went further down, €1 to 1.6 to the dollar. So yes, has gone down, but let's see what happens. And second as well, is that inflation, everybody talks about inflation and inflation is now a relatively low point, 2.4%. So we don't know yet. There are so many variables, geopolitical uncertainty, many aspects, etc. But yes, one thing that has been lost is trust, for sure.

[Ana Hoski]

Yeah. And how does this trade policy impact investor confidence in the US as a place to do business?

[Lourdes Casanova]

And yes, you Hear, you know what, the dollar is going down, there is uncertainty. Emerging markets have done a little bit better. The currencies have revalued or better. The dollar has gone a little bit down. Stock market here is so broad, so deep, the volume is unbeatable. So then, yeah, even if you have lost trust, then where do you go? Do you go to China, do you go to other countries? So emerging markets is like the Sisyphus myth. You push the stone up the mountains and all of a sudden there is a currency devaluation, there is a geopolitical problem and then the markets go further down. So we have seen, yeah, there is a lot of talk about that. But the dollar continues to be the currency of the world and the stock market has done extremely well this year in spite of some ups and downs.

[Ana Hoski]

So I'm hoping to talk a little bit about some of the unknowables for businesses, mainly refunds. Earlier this week, FedEx said that it was suing the federal government for a full refund of the tariffs it paid. That was the first suit from a major US Company since the decision was made. But some other companies like Revlon and Costco had already sued for refunds ahead of the ruling. So if companies successfully secure those refunds, there's also no mechanism to pass that back to consumers, right?

[Lourdes Casanova]

Of course not. But again, President Trump has said that maybe rebating will give a check of rebate of $2,000. Has been talking about that for companies, also difficult. So let's see what will happen in the next days. We are moving to another era and the new era is industrial policies, nationalizations have happened in Europe for sure. And more scrutiny regarding trade. I mean the success of China was for everybody, mind boggling. And to a certain extent, since China has won and has been so successful with another economic model, everybody's thinking maybe we were wrong and maybe the government needs to have a place not only regulating but intervening in, in the business world. So we have seen that earlier in Europe, Europe, there is always more weight. So between China, let's say that is a state capitalism, and the United States, that is clearly a market economy. So we see the, strangely enough all moving to a more important role of the government.

[Ana Hoski]

So bringing this back down to the average person who's just trying to make online purchases, buy groceries, what's the realistic outlook for them amid all this uncertainty?

[Lourdes Casanova]

This Harvard study says thousand dollars, we all have paid thousand dollars more. If we look at inflation, as I said, 2.4%. So the inflation, yes, there is inflation, but not that much as one could have expected if you have let's say 10% tariffs across the board in everything or 15%. So inflations should have been higher. So there are many different moving pieces here and remains to be seen what will happen. And so far for the first year, things are reversing, but it would seem a certain consensus to say, okay, let's see if this works. For sure we need real jobs, some manufacturing. Okay. It was talks that semiconductors factory would be coming to Syracuse. Let's hope so. Remains to be seen. But more meaningful jobs, I mean small farmers is subsistence economy. So we need that and this is trying to get them back. Let's see what will happen.

[Ana Hoski]

All right. Lourdes Casanova, senior lecturer at Cornell University's S.C. johnson College of Business, thank you for helping us out today.

[Lourdes Casanova]

Thank you, Ana.

[Elizabeth Ayola]

Thank you, Ana. Up next, we answer a question about sinking funds. But before we get into that, we'll be in Scottsdale in a few weeks.

[Lourdes Casanova]

Yay.

[Elizabeth Ayola]

And we wanna answer your money questions in person. And when I say we, I mean me and Sean. We would love to talk you through debt repayment options or go through your budget for our budget Rehab series. So if you'd like to hop on the show and meet us in person, leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That's 901-730-N E R D. You can also email us at podcasterdwallet.

[Sean Pyles]

Com and you can leave us your money questions anytime in a comment on Spotify or YouTube as well. In a moment, this episode's money question. Stay with us.

[Elizabeth Ayola]

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[Sean Pyles]

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[Sean Pyles]

Services not available in all areas. We're back and answering your money questions to help you make smarter financial decisions. This episode's question comes from John, who sent us a text. Hello, my name is John and I'm currently trying to save up to a three month emergency fund. I plan to eventually contribute about 15% of my income toward my company, 401K. At the same time, though, I want to invest money monthly into sinking funds for things like a new car, vacations, et cetera. What is a good percentage of my income to put toward these sinking funds after I'm investing 15% into my 401k?

[Elizabeth Ayola]

Now this episode, Sean and myself are going to take on John's question on our own. Yes, we are. All right, let's dive in. Sean, let's start by talking about what a sinking fund is. You know, I was talking to my partner about sinking funds and he like, what's a sinking fund? So not everyone knows what a sinking fund is.

[Sean Pyles]

We are big fans of sinking funds, also called savings buckets, but it's essentially having a different account for a different saving purpose. So I have a number of them and we'll get into the details of that in a minute. But it's great to have different goals allocated in these accounts. So like John said, they want to buy a new car, they want to go on vacations. It can be really nice to allocate certain amounts of money into these different accounts each month from your paycheck so you know you're making progress. So on different goals at the same time without having some big kind of nebulous wad of cash in the savings account that's just for these different goals.

[Elizabeth Ayola]

I feel like you're throwing me shade. I feel like you're being shady because I have, I know you are because I have disclosed in the past that I had a big wad of cash and I would just randomly pull from it. And yes, it was, it was a little messy.

[Sean Pyles]

However, you've since come around to the sinking fund mindset, which we will get into in a moment. I don't want to spoil that, but I'm excited to hear how they're going for you. And something to think about too, with sinking funds is that it's essentially a form of mental accounting. And sometimes people describe mental accounting, which is really just when you prescribe different pots of money, different values, as something that can be almost detrimental to your finances because at the end of the day, a dollar is a dollar no matter what account you have it in. But again, I really actually like doing this because it's a really helpful trick for you managing your money. And a lot of personal financial management is setting up little tricks for yourself so you can accomplish your goals with the resources that you have.

[Elizabeth Ayola]

Yeah. And I think for people who struggle with organization or who just like their financial goals to be more visible, sinking funds can be helpful because you can literally see money for each goal in a separate pot and you know where everything is going.

[Sean Pyles]

Yes. And some banks, depending on which one you're using, will allow you to name the fund that you have. So in my High Yield savings account, I have various ones and they're all labeled, so I know exactly what's going where. No need to track what the account number is.

[Elizabeth Ayola]

Yeah. And speaking of high yield savings accounts, that is a easy plug for you guys. If you do want to create a sinking fund, putting one in a High Yield savings account can be very helpful. Why? Because you get lots of interest. Well, lots is relative, but you get interest on the money that you're saving.

[Sean Pyles]

Yeah. And that brings me to a key word in John's question is that they said they want to invest money monthly into sinking funds. I will put my money in my sinking funds into a High Yield Savings account, which isn't necessarily investing, it's just saving. But this comes down to a matter of your time horizon too. I think if John has a longer term goal, like if they know they don't need a car right now, but they might in five to seven years, in that case, they might actually want to invest this money in a sort of sinking investment fund for this purpose. And generally a good rule of thumb is that if you don't need money within five years, then you might want to keep it invested because you can get generally a better return. You know, we never know what the market's going to do, but that's just often the case. But if you need your money in five years or less, in that case, you probably want to keep it in a high Yield savings account. One thing I run into a lot when I talk about sinking funds is that people think that this is a really complicated strategy because at certain points in my life I've had around 10 different accounts and people say that is bananas. Yeah. How do you keep track of all these accounts? Well, it's actually super, super easy. You basically make a sub account for each purpose and you label it according to whatever the goal is. And for me, the real secret to success is direct automated deposits from each paycheck. So in the back end of my paycheck at NerdWallet, I can allocate, I want 5% to go towards this account or 2% to go toward that account, adding up to 100% of my paycheck, obviously. And that way my savings are going into these places and I'm not really thinking about it. When you first set this up, you're going to want to double check that your payment processor is actually doing this properly. I have run into issues with that in the past. However, once you're confident that the direct deposits are working properly, just sit back and relax and watch your money grow.

[Elizabeth Ayola]

I have a follow up question for you, Sean, the sinking fund expert here. Do you have all of your sinking funds with one provider or do you have multiple accounts across multiple banks?

[Sean Pyles]

I guess the answer is yes to both questions. Because I primarily bank with one online bank and I have all of my sub accounts there, all my sinking funds there. But I just opened a couple other accounts with a new online bank that has more ethically aligned practices for what I want my bank to do. I have yet to actually migrate everything over to this new bank. I'm planning on doing that sometime soon after I file my taxes. Maybe it's on my to do list. So eventually I will have everything over to this new bank. I'll close out my old bank. And because I just want to keep it all within one bank's ecosystem, navigating different accounts across different banks just sounds too confusing for me.

[Elizabeth Ayola]

Absolutely. And that's what I wanted to pull out there. Because if any of the listeners out there are like me, I do not like managing multiple banks at once. And that can be an impediment to you starting a sinking fund in the first place if you feel like you have to open multiple accounts at multiple banks.

[Sean Pyles]

Yeah. But that said, my general checking account is a local credit union in the Portland area that's different from the bank that I use for my sinking funds because that's an online high yield savings account. So I think it's okay to have a couple of different accounts. I Actually, I guess technically bank with four banks because I have a small account that is connected to my mom so that she can get my portion of the cell phone bill. I've had this account open since high school. I've talked about it probably a million times on this podcast before. And I just keep it open because I'm lazy and it's how I send my mom money each month. But yeah, from. For day to day banking, I really just use two accounts.

[Lourdes Casanova]

Yeah.

[Elizabeth Ayola]

So I would not recommend, but suggest that people do what creates the most ease because that's what financial management is about. The more complicated it is, the harder it is to keep up with it and to stick with it.

[Sean Pyles]

Yeah. Another question I get when I talk about sinking funds is how to find the right account for you. So, Elizabeth, how did you find the bank that you are currently using?

[Elizabeth Ayola]

I'm pretty straightforward. So I go where the money resides and that means I'm going for whoever has the highest interest rate. So I want the best return on my money and that's essentially how I pick. But yes, this is a cheeky plug, but it's honest. I use NerdWallet because we have articles that tell us who has the best rates. I also do think about when I'm looking for a bank E. So I like to make sure that customer service is easy to reach in case I need any help and that they're accessible. I'm not a big app person, so I know some people are like, oh, I won't use this bank if I don't like the app experience, but I'm just pretty simple. So ensure that I can easily get help and that you have a good rate. Those are my two top things.

[Sean Pyles]

I'm similar to you. I want a good rate. I also rely heavily on nerd wallets roundups. I was actually shopping around toward the end of last year after we had a couple interest rate cuts. And the bank that I have been using for years and years was more aggressively cutting the yield that they were giving people on their high savings accounts, which didn't make me too happy. So I found this other bank that again, was more aligned with my values, my ethics, and they had a better yield, which is ultimately, at the end of the day, kind of what you want your money to do is get a better return for you.

[Elizabeth Ayola]

That's right. And I changed mine. I had been using my high yield savings account, I think, for four years. But yeah, like you said, the rates kept going down and I was like, well, why am I sticking with bad Rates, you know, and I. Yeah. In December as well.

[Sean Pyles]

Get that money.

[Elizabeth Ayola]

That's right.

[Sean Pyles]

Okay, well, let's turn to another key part of John's question, which is an emergency fund. They say they want a three month emergency fund. I have some thoughts about how big an emergency fund should be. Do you want to kick us off and tell us about, you know, how much people should maybe have or what your thoughts are there, Elizabeth?

[Elizabeth Ayola]

Yeah, I think the rule of thumb is that you should have three to six months worth of income in your emergency fund. If you are a single income household like me, then you should be closer to the six month mark just in case of an emergency, since I don't have anybody else's finances to lean on. So I think that's the rule of thumb there.

[Sean Pyles]

Yeah, and I'm pretty aligned with that too. I realize that that's a really difficult thing to save toward for a lot of people. So understand that building up an emergency fund can be a multi year goal. And right now I'm continuing to add more to my emergency fund, even though I'm at the point where, you know, I'm in a two income household, I have three months saved in my emergency fund. That's another rule of thumb there. And I feel okay with that amount. But I also like to pad it out because the world is unstable and the job market is tough. So having an emergency fund is your best line of defense against going in debt if and when an emergency does pop up. So just stash away as much as you can. Don't beat yourself up. If you don't have three to six months worth of savings, even a thousand dollars can go pretty far preventing you from pulling out that credit card when your car breaks down.

[Elizabeth Ayola]

That's it. And I know if anyone is like me out there, sometimes you feel guilty when you pull from your emergency fund. So I also want people to remember the emergency fund is supposed to ebb and flow because emergencies will come up. So it's okay if you've depleted your emergency fund and you're rebuilding it. Like Sean says, that takes time.

[Sean Pyles]

Yeah, that's a good reminder because every time I use funds from sinking funds, I feel kind of guilty in a weird way because I've been saving up so diligently and then I had to pull the money out and now I feel like much poorer than I did 24 hours before. But that's the whole point of these funds anyways. You're supposed to be using the money. I had that experience with my wedding fund where I'D been saving up. I had around $20,000 that I'd been building up over five years for my wedding. And then over the course of four weeks, I just spent so much money on the wedding, and I felt like I was doing something totally irresponsible. But in fact, I was doing the most responsible thing. I was saving the money I put aside. So talking yourself out of feeling bad for spending money can be kind of a challenge sometimes.

[Lourdes Casanova]

Yeah.

[Elizabeth Ayola]

And doesn't it just feel good to see all that cash in your account? You just don't want it to go down? I think it's that as well.

[Sean Pyles]

Yes. I want a big number in my account.

[Elizabeth Ayola]

That's it. All right. So John also wanted to know how much of their money they should save. So we love the 50, 30, 20 framework here at NerdWallet. And for those who are not familiar with that, 50% go to needs, 30% to wants, and 20% to debt and savings. Now, this includes retirement savings and sinking funds. So for John, that 20% could go towards the sinking fund.

[Sean Pyles]

Yeah. And something people don't often consider is that when they want to save, say, 15% of their income toward retirement, that includes their employer match if they get one. So say John's employer matches 4%. In that case, they only really have to save 11% of their income for retirement. And something I want to throw out, too, is why we even talk about 15 of your income as a savings goal for retirement. This is a common rule of thumb that a lot of financial planners will say will help you tuck away enough for retirement, although that's not inclusive of every circumstance that you might have in your life. We talked a few weeks back with a financial planner from Nerd Wallet Wealth Partners about how financial planning is so individual and folks listening, if you have not yet play with NerdWallet's retirement calculator to get a feel for the numbers that you might need to hit and how much money you might need to be tucking away and what that might mean for a percentage of your income for retirement savings.

[Elizabeth Ayola]

Yeah. And I just want to say as well, if John did want to use the 50, 30, 20 framework, they could put 15% of their income towards their 401k, as they're already doing, and then that extra 5% could go towards their sinking funds. If you are an ambitious saver and you have big sinking funds goals, you could always increase that 5% and maybe pull money from that wants bucket just so that you can save more money.

[Sean Pyles]

John's question also brings up the topic of financial priorities, which one should you put first? Saving for retirement or building up your emergency fund? In general, it's going to be a smarter idea to get to at least a thousand dollars, hopefully that three to six month mark in your emergency fund before you are really, really diligently saving for retirement. We know that people are playing the long game when it comes to retirement savings. You want to be able to tuck away as much money as you can, but you also need to protect yourself against the emergencies happening today.

[Elizabeth Ayola]

Since we're talking about financial priorities, there also may be priorities amongst your sinking fund goals. Right. So I would like to categorize sinking funds into non negotiable sinking funds and then lifestyle sinking funds. So non negotiables may be things like childcare, which is an expense that comes up for me every year. Your car, it may not be a monthly expense, but it's one that tends to come up if you're maintaining it. Maybe annual credit card fees. It sounds like I'm talking about all my non negotiable fees.

[Sean Pyles]

Yes, you are. Yes.

[Elizabeth Ayola]

And then lifestyle sinking funds could go towards travel, a new car, things that are not essentials, but things that you want just to enhance your lifestyle in some type of way. So I think it may be good to prioritize the non negotiables when you're working towards that sinking fund, building it up, and then, you know, you can put the lifestyle sinking funds under that.

[Sean Pyles]

Distinguishing between negotiable and non negotiable sinking funds is such a personal matter too, because I hear you say your credit card annual fees, I think that could be a sort of lifestyle sinking fund because we don't need credit cards that have several hundred dollar annual fees every single year. That's a lifestyle choice that can become a necessity because of how you've thoughtfully had some lifestyle creep come about. Which can be okay, but just be upfront about that.

[Elizabeth Ayola]

I agree, but if I have the card, then I have to pay the fee.

[Sean Pyles]

So, you know, unless you cancel it before the fee comes due.

[Elizabeth Ayola]

That is a hack. That is a hack.

[Sean Pyles]

Okay, well, this is actually a great time to chat about our own sinking fund situations here. At one point I mentioned I had around 10 different sinking funds, including some checking accounts, but I actually have fewer today. Oh, I have eight. And so I have my emergency fund taxes, fun money, car cash, house maintenance fund, student loans, and then those two main checking accounts that I use. So I guess technically just six sinking funds and then eight checking accounts total.

[Elizabeth Ayola]

That's reasonable. When you break down what each one is for.

[Sean Pyles]

Yeah. And I have two that I've retired that I haven't fully closed out. One was my wedding fund, because, guess what? I already got married and I don't need that money anymore. And then the other one was a fund that I put together for my CFP education a couple years back when I was paying for classes for that.

[Elizabeth Ayola]

Yeah.

[Sean Pyles]

And I think that that shows how funds can change over time. You can have a different purpose depending on your current priorities, and they don't need to be a forever thing.

[Elizabeth Ayola]

Why are you doing a student loan fund instead of just having it come out of, I guess, your general bill account, assuming that you have one?

[Sean Pyles]

This is a personal preference. I hate my student loans. And so I want the money that's coming for my student loans to be in its own account, to quarantine it from the purity of the rest of my money. Not the purity, Sean.

[Elizabeth Ayola]

Really?

[Sean Pyles]

That's just me being silly and petty about my student loans. Not everyone has to do that with their money.

[Lourdes Casanova]

Yeah.

[Elizabeth Ayola]

And I think that goes to show you can personalize your sinking funds however you want to. I was just curious.

[Sean Pyles]

And also, it doesn't have to all be the most serious thing you're doing. Like, I. That is probably the silliest fund I have for my most frustrating bill, and that's a way that I can process it and make it a little bit easier to digest every month.

[Elizabeth Ayola]

Absolutely.

[Sean Pyles]

So, Elizabeth, you recently got into sinking funds. Tell me where your situation is.

[Elizabeth Ayola]

Well, since this is a safe space, I'll tell you. All right, so I only have one sinking fund right now. I do plan to open at least maybe one more. But I wanted to start, since I'm new to sinking funds, with my biggest pain point. And just as you hate your student loans, loan repayment. I hate paying for childcare. I hate paying for summer camp. I love it for my son. I love it for IO, but I hate it for me.

[Sean Pyles]

It's not cheap. How much is it?

[Elizabeth Ayola]

Oh, my goodness. Every summer, I spend at least, at minimum, $2,500. That's the least I spend.

[Sean Pyles]

Just for the summer. Just for the summer is an ongoing childcare.

[Elizabeth Ayola]

Yeah, just for the summer. I think the most I've spent is maybe around $3,000 for the summer.

[Sean Pyles]

That would be a really nice vacation for yourself if you spent 2,500 bucks on a summer vacation.

[Elizabeth Ayola]

I'm looking forward to that when camp ends, to redirect that money somewhere else. But as I've said on the pod before the expense comes every summer. And I'm shocked and annoyed and I'm pulling money from my savings because I haven't necessarily saved specifically for that goal.

[Sean Pyles]

Okay, so how are you putting money into the account on a regular basis to hit that $2,500 goal by summer?

[Elizabeth Ayola]

I am proud to say that I have opened a Dependent Care fsa. Now, for those who don't know what that is, it is an employer sponsored account. It has pre tax benefits and you can pay for qualified dependent care services. So that includes preschool, daycare, summer camps, and all the things. So I've opened one of those accounts. Technically, I don't know if we want to call this a sinking fund. Do we want to call this a

[Sean Pyles]

sinking fund, Sean, if it's not a checking account or a savings account that you're putting money into like I described, I wouldn't say it's technically a sinking fund. Sinking funds are usually in these high yield savings accounts.

[Elizabeth Ayola]

Okay, well, in that case, I have an account that I'm saving for, but I don't technically have a sinking fund yet. But we're still, still doing the basics, right? We're setting aside money for a specific financial goal.

[Sean Pyles]

There you go. Okay. And so you're putting money into this dependent care fsa. How much are you putting in on a regular basis?

[Elizabeth Ayola]

Well, the thing that I do not love about the Dependent Care FSA is if you don't spend it, you lose it. So since this is my first year doing it, I didn't want to put too much. I believe I'm putting about $300 per paycheck towards the FSA account and that will help me, especially come summertime, to be able to pay for those expenses with tax free dollars.

[Sean Pyles]

Well, I love to hear that. I'm glad that you're saving for this goal in your own way, even if it's not in the sort of traditional highlight savings account sinking fund way that we typically talk about.

[Elizabeth Ayola]

Yeah.

[Sean Pyles]

So with that in mind, do you think you would ever come to my way of managing your money and maybe having a specific sinking fund in your house savings account for your travel, because you love to travel.

[Elizabeth Ayola]

I do.

[Sean Pyles]

Or whatever sort of adventure hijinks you're getting into because you're always going like four wheeling, ziplining, have your zip lining fun set up?

[Elizabeth Ayola]

Yes, absolutely. And my main goal, as we talked about in a previous episode or one of my goals is to save money towards my birthday. So I'm going to open a high yield savings account for that. My goal holding myself accountable is to do it this weekend. It's just, you know, what's been stopping me is looking for all my information. Because when you have to open a new account, they're asking for information and it's either in my book or app or somewhere else. And then I'm like, I'll do it later. So that's one of the main things that I want to save towards. I'd also like to save towards a vacation for me and IO this year because we're definitely going to go somewhere probably in August. So it'd be nice to start saving for that now.

[Sean Pyles]

You might be surprised how easy it is to open a High Yield Savings account. You can do it in 10 minutes. What information do you need? Because for me, I just plug it all in and bada bing, bada boom, new account.

[Elizabeth Ayola]

Well, I know this is not necessary for every account, but the last High Yield Savings account that I opened, when I transferred my money at the end of the year, they usually ask you to deposit into the account. I know not every account has that as a requirement, but that's when I have to look for my banking information from the bank that I'm going to deposit the money from. And it's a little thing, but, you know, it's just something I keep going, I'll do it later.

[Sean Pyles]

So, yes, I think that gets to how there are so many little administrative hurdles in the world of personal finance that discourage people from taking what should be an easy action. Like setting up a bank account for this purpose should take you five minutes to do. But if you don't know your account login for where you currently have your money, or you need to find some piece of paper that has all of your, like account number and routing number, then you just throw up your hands and you say, I'll deal with it later. Next thing you know, three months have gone by, that's it, and you're not using this account at all.

[Elizabeth Ayola]

You're not using the account. And the other thing, actually, now that you speak of that, the other admin thing I'm going to need to do is go to Nerd Wallet and then add, as you said, because I love to automate my, you know, deposits as well and make sure that my money is taken straight from my paycheck and put into that sinking fund. So two little annoying things that I need to do.

[Sean Pyles]

Well, let me know if you want an accountability buddy. I'm happy to keep pestering you about this.

[Elizabeth Ayola]

Absolutely. So next week, ask me if I

[Sean Pyles]

did it and listeners if you have any other sort of interesting hacks for how you use sinking funds, let us know. We always love to hear what you're doing with your money. Remember, listener, that we are here to answer your money questions. So turn to the Nerds and hit us up on the Nerd Hotline. You can call us at 901-730-6373. That's 901-730, nerd. You can also email [e-mail] gather here

[Elizabeth Ayola]

next time to hear about how to accurately track your expenses. And in the meantime, follow Smart Money on your favorite podcast app. That might be iHeartRadio, Spotify Apple Podcasts to automatically download new episodes.

[Sean Pyles]

Here's our brief disclaimer. We are not your financial or investment advisor. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances and the

[Elizabeth Ayola]

episode that you're listening to. This one was produced by Tess Viglund. Hilary Georgie help with editing. Nick Karisimi and Eve Krogman helm our audio and video production. Huge thank you to NerdWallet's editors for all their help.

[Sean Pyles]

And with that said, until next time, turn to the Nerds.