Sinking Fund Methods That Actually Work, Plus The Hidden Cost of AI Data Centers

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0:55Sean Pyles:You know them, you love them, and after we did a whole segment on them, you wanted more. So let's talk again about your questions about sinking funds. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. Later this episode, some follow-up questions to the episode we did on how to utilize savings buckets. 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. Today, our news colleague Anna Hilhoske joins us to talk about data centers.

1:30Sean Pyles:They were once the kind of project every town was vying for with the promise of tax revenue, jobs, and a foothold in the AI economic boom. But lately, towns are pulling back the welcome mats as local opposition to new facilities and their potential costs spreads. Anna is going to unpack why towns are pushing back against data centers. Anna, welcome back. Thanks, Sean. It appears that people are not so excited about becoming neighbors with data centers, especially the very biggest data centers known as hyperscale facilities. In June, Heatmap released a poll that found 70 % of Americans oppose a data center being built near their homes.

2:04Sean Pyles:Now, Heatmap did the same poll in October of last year, and that number was 42%. Wow. Okay. So that's a very big change in a pretty short amount of time. Yeah, it is. And I got to say, after all the research I've done on data centers, I can't really blame them. That spike illustrates how quickly backlash is spreading. I'd like to add that the swing is nonpartisan. So this has become an issue for people all over the political spectrum. So it's nice to find something that we can all agree on in this country. Let's start with the big picture. Why are so many Americans suddenly turning against data centers?

2:34Sean Pyles:People are starting to get the sense that they'll be footing a bill that they never agreed to. And those costs are not only financial, but quality of life related as well. Speaking of bills, electricity is often the first cost that people bring up. Why are data centers pushing utility rates higher? Because these facilities require an enormous constant supply of power. There's a meta facility under construction in Wyoming that's expected to eventually consume 10 gigawatts. And there's another one in Ohio funded by the Department of Energy that would consume the same. Now for context, one gigawatt is enough to power roughly 1 million homes.

3:07Sean Pyles:So 10 gigawatts is the equivalent of 10 million homes. When that kind of demand gets added to an aging electrical grid, utilities have to upkeep and even expand infrastructure. And a lot of that cost is going to get passed to rate payers. I'd like to add that when I say rate payers, that may include people who live nowhere near the facility itself. One of my sources for a recent story I wrote on this topic lives in Baltimore, and he said that he's seen his electricity bill rise because of data centers 60 miles away in northern Virginia, which is known as Data Center Alley. And that's simply because they're on the same regional grid.

3:40Sean Pyles:So this is not just a local Virginia issue anymore. No. Nationally, data centers accounted for under 6 % of U.S. electricity use today. But last week, Bloomberg NEF published a projection that shows data centers could comprise one-fifth of the entire U.S. electricity consumption by 2035. So this cost pressure is going to spread well beyond the current hotspots. Jeez. So who would actually end up paying for grid upgrades these facilities require? In most cases, it's a shared cost, and that's exactly why it's so controversial. And Dominion Energy, the major utility that serves northern Virginia, has announced plans to spend$8 billion expanding its infrastructure.

4:18Sean Pyles:And Virginia ratepayers are expected to cover more than half of that. So electricity isn't the only utility that folks are concerned about. Water is another big one, too, right? Yeah, cooling all those servers takes a lot of water. A mid-sized data center can use as much water as a small town. And the largest facilities can consume around 5 million gallons a day, comparable to a city of 50 ,000 people. That water often gets pulled from the same aquifers and rivers that supply drinking water and are used for agriculture. Most new data centers are also being built in rural, sometimes drought-prone areas that already have water restrictions.

4:52Sean Pyles:Any pipeline expansion or water infrastructure that's needed to support the demand for data centers can also fall on taxpayers. I do want to stress, however, that the full impact of data centers on water supplies still isn't evident. Data centers are now sucking up all our electricity. They're sucking up our water. I've heard they also make a horrible noise. What do they actually sound like? And love me actually trying to make the noise. Basically, it's a low frequency constant hum and it vibrates. And because it's spanning multiple frequency ranges, it's pretty difficult to measure with a standard decibel meter.

5:25Sean Pyles:And that's also why existing local noise ordinances might not be able to regulate the sound level that these data centers emit. And are these resulting in any health effects? Has anything been reported there? Because it sounds like it can't be good for you. Anecdotally, there have been some reports, but long-term health research specific to hyperscale data centers doesn't exist yet because these facilities are a very new phenomenon. People have reported sleep disruptions, headaches, and feeling that vibration from cooling fans, HVAC systems, and electrical equipment. These facilities also have backup diesel generators that cycle through regular testing, and those are going to make noise too.

6:02Sean Pyles:But more importantly, they emit diesel fumes into the air. So we know that there are health effects tied to air pollution, like respiratory issues and cardiovascular strain, and those carry their own long-term health care costs for residents, too. OK, and this is a show about money. So let's talk about a bit of that. What are these data centers doing to people's property values? It's genuinely a mixed picture. Now, there is a 2025 George Mason University study that found homes closer to existing data centers in northern Virginia actually sold for more than those further away from the data centers.

6:33Sean Pyles:That also could be more coincidence than causation because those areas already had strong infrastructure and job access. The open question is what happens in rural communities or in other areas that get rezoned for a data center. This is my own opinion, so take it with a grain of salt, Sean. When you consider all of the financial costs and quality of life issues that we've talked about, it's certainly possible that homeowners may watch their property values drop in the future. Based on everything you just laid out, that seems very possible. I mean, the noise alone would make me not want to live near a data center.

7:03Sean Pyles:One of the industry's counter arguments has always been that they'll bring in new jobs. Has that panned out at all? That's another mixed picture. But the bottom line is that there are jobs, just less than advertised. Recently, the Brookings Institution looked at over 700 data centers and they found local employment does rise. It's about 4 % to 5 % over a five or six year period. That works out to about a few thousand jobs for your average county. Now, there are also construction jobs, and those are going to spike, as you might expect, but that's just going to be temporary while they're actually being built.

7:35Sean Pyles:Strong and durable employment gains show up only in counties that have multiple hyperscale campuses that are clustered together. And most places aren't going to have that kind of concentration. Just to lay it out, for a lot of these towns, the promised economic upside is smaller than their pitch suggested, while the cost exposure to things like the noise and electricity costs and water usage is ongoing and maybe greater than they anticipated. Exactly. And there's one other kind of tricky element here. The companies and municipalities that negotiate deals to build data centers often operate under nondisclosure agreements.

8:09Sean Pyles:So residents may not even get the full visibility into the tradeoffs that their towns are taking on. And that lack of transparency is just one of the reasons why the backlash has escalated so much in the last year. OK, and we've been talking about this big public outcry against data centers. What's the response to that been like? We're seeing moratoriums pop up all over the place. Most recently in New York State, where I live, they put a one year moratorium on permitting or building data centers until the state has had time to examine potential effects and hopefully even create some regulations.

8:40Sean Pyles:But even within the state and the rest of the country, most of the pushback is happening really at the local individual town and county level. What should someone do if a data center is proposed near where they live and maybe they're not a big fan of these things? Get information and ask questions. Deals are going to get shaped during zoning hearings and public comment periods. And that's when people should ask who's going to be actually shouldering the price of infrastructure upgrades and what else do residents need to know that they may be covering down the road? All right. Well, Ana, thank you so much for sharing all of this.

9:11Sean Pyles:Of course. Up next, some of your follow-up questions about sinking funds. But before we get into that, a reminder, folks, to send us your money questions. You can leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. It's 901-730-NERD. You can also email us at podcast at nerdballot.com or drop us a comment on Spotify or YouTube. More in a moment. Stay with us.

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11:22Sean Pyles:Quince also offers elevated essentials for your home, from bedding, like I mentioned, and bath, to kitchen essentials and furniture. Make your summer wardrobe feel easier. Go to quince.com slash smartmoney for free shipping on your order and 365-day returns. It's now available in Canada, too. That's quince.com slash smartmoney for free shipping and 365-day returns. quince.com slash smartmoney. So you've got your savings bucket set up. You have your emergency fund, your vacation fund, and even one for that sauna you want to build in your backyard. Although that might just be me. But what happens when you have to actually pay your bills?

12:02Sean Pyles:How do you pay anything from your sinking funds? Today, we'll get into that. This episode, wait, before I say that, Sean, I didn't know that you wanted a sauna in your backyard. I need more context on that later. What? Yeah, it's for all of my running, my body needs a sauna in my backyard immediately. But it turns out they are very expensive if you want a good one. Well, I would think so. Anyways, this episode, we are following up on a recent conversation we had about savings buckets. Y 'all really seem to like that conversation because we got several more follow-up questions about it. For those who didn't hear that episode, Sean laid out his savings bucket strategy.

12:37And yeah, it really resonated with you guys. So we're going to answer those questions today.

12:41Sean Pyles:We're going to talk a bit about how to make the system work when it comes to taking money out of the accounts. But here's a quick recap of the savings bucket episode for those who may have missed it. Basically, the savings bucket or sinking fund strategy is super simple. You essentially have a different savings account for each goal. So that is going to be your emergency fund. If you want to buy a house, it could be a down payment fund. If you're going to buy a car, maybe that's your car fund. Whatever your goals are, whatever you value in your life, you have a different account for that. ideally in an online high-yield savings account, so you're earning some money on what you have in there.

13:13Sean Pyles:And the system typically works best when you have direct deposit set up, so your money is automatically going into these accounts. And this is a great exercise in figuring out your budget as well, because there is a bit of trial and error when it comes to figuring out how much money to put into each account. And Elizabeth, you experienced that when you were setting up your accounts, right? I have, and you would not be shocked to know I have fiddled with it again. So it definitely It's an iterative process to try to figure out the exact sweet spot for you. But you went super deep into your budget and figured out where all of your money was going, almost like zero-based budgeting when you were setting up your savings bucket.

13:48Sean Pyles:So how have you changed it since then? Well, I've had a change in my finances. You know that I have a side business, and I've had one client in particular for almost five years now, and they haven't paid me in three months. Oh, no. So that completely, yeah. That throws off your budget. Exactly. And it's a big chunk of my budget. So I had to restructure my whole budget and also readjust my sinking funds just so that it could focus on my nerd wallet income as my primary income. I'm sorry to hear about that. That's super frustrating. Thank you. It is. Yeah, but it shows that this is a really evolving process.

14:20Sean Pyles:And I like what you mentioned about how you're just using your sinking fund strategy from your nerd wallet income, which is your most stable, reliable source of income. for those who might have different sources of income coming in, that might not be a bad idea because, you know, we all have different ways of making money, but you want this to be as predictable as possible. And especially if you are doing direct deposit, you don't want to overdraw an account because you're expecting money to come in and it's not actually coming in. That can create a bit of a messy situation. And stress. I've been there and it's extremely stressful, especially if your big bills are coming out of that inconsistent income.

14:54So keep your fixed variable expenses that are most important to your livelihood connected to your primary source of income is my tip there.

15:02Sean Pyles:I get that. Okay, well, let's get to the first question we got from a listener about how to actually pay from your sinking funds. Here it is. Thanks for covering sinking funds. But when it's time to pay, how do you manage that? If everything is going on the same credit card, do you then have to be mindful to transfer funds to the account that pays the credit card? Let's say you go out and get that sandwich or that concert ticket. That money might live in your fun money account. So there is some management required unless you have a credit card or debit card issued with each account. I hope you can explore this further.

15:30Sean Pyles:Love the podcast. Thank you so much, Tim. Tim, if you are listening, when I first sat down and went down that rabbit hole trying to arrange my sinking funds, it literally was mental gymnastics for me. So it does take some front loading and some organization to figure out a strategy first and foremost. And I really appreciate this question and your experience with this too, Elizabeth, because I've been so deep in the sinking event strategy now for many, many years that I kind of take for granted how I manage my spending for it. And that's why, honestly, it was a bit of an oversight that we didn't even talk about it in that last episode.

16:01Sean Pyles:So there are a few ways to make these payments and we'll go through them right now. So the first one is what I'm calling the single account method. You pay off your credit card balances with one account and then transfer between your various savings accounts. Let's say you have your fund money account connected to your credit card, you'd pay off your entire balance from that account, for example. And then if you had an expense from your needs category, you would transfer the amount of the expense from that into your fund money account. So it all kind of balances out. Are you following that, Elizabeth?

16:30Yes, I am following. And initially, I thought that's what, you know what? No, actually, I think the single account method may be best for someone who doesn't have too many different sinking funds. So for people who have a very simple budget, I think the single account method may work best.

16:45Sean Pyles:Yeah, I agree with that. I have a lot of sinking funds, a lot of financial goals. So this doesn't work for me. And it ends up leading to a lot of shifting around of money from different accounts, which there's going to be a certain amount of that depending on which method you choose for payment. But I try to keep it as simple as I can and not do too much. So that brings me to the multi-account method, which is where you actually connect all of your savings and checking accounts to your various credit cards. And that can help if you really wanna have everything super connected and organized and tidy.

17:20Sean Pyles:I am actually a little lazy when it comes to setting up my various accounts in this way. So I don't actually do this, but it would prevent you from having to do that math of thinking, okay, I had a needs expense here and a want expense there, but I actually paid it from just my wants expense. So how do I move that money around? this would make that not an issue at all. But you do have to go into your credit card accounts and just put all that information in, which really is a one-time kind of headache compared to the ongoing administrative process of moving money around. So as I'm saying this, I'm almost convincing myself that maybe I should start the multi-account method just so I don't have to move money around.

18:01Are we pivoting? Yes. And this is, finances are so fluid, right? Sometimes you try process. Well, tell us the last one then, Sean.

18:08Sean Pyles:The last one's the hybrid approach, and this is what I do. You have your primary checking or savings accounts connected to your credit card accounts, but not all of them. And you might occasionally transfer money between different savings accounts to cover expenses. So let me lay out how this really works for me. I have three accounts connected to my credit cards, and I have three credit cards that I use on an ongoing basis, so it's not super complicated for me there. My checking account, my fund money account, and my emergency fund account are all connected to my various credit cards. My checking account covers my needs.

18:39Sean Pyles:So that's gonna be things like groceries, medical bills, utility bills, et cetera. Fund money covers the wants of your 50, 30, 20 wants category. And then as you might imagine, the emergency fund covers emergencies, but it also works as sort of a buffer account for other expenses from less commonly used savings buckets like my house fund or my car fund. Each year when I get my oil changed, It's like$1 ,000 because I have a stupid European car that's expensive to maintain. $1 ,000 oil change? Yep, I know. I did not know. Mine is$120 or something. Jeez. That's why you don't buy a European car unless you really want to throw a bunch of money into it, which is, I guess, the life choice that I have made for myself.

19:20No, you're wrong with that, though.

19:21Sean Pyles:It's fine. I love my car. It's okay. I'm used to it. But my point being, I don't have my car fund connected to my credit card that I charge my oil change onto. So I have money going into my car on an ongoing basis. So when it comes time to pay my credit card bill, I'll see, OK, I have$1 ,000 from this oil change. I'm going to pay that for my emergency fund and then transfer the money from my car fund back into my emergency fund just to get things square and steady. A lot of steps and a lot of transferring. A little bit, but it's not as complicated as it might sound because if you are having good financial hygiene and managing your expenses and reviewing what's on your credit card statement on an ongoing basis, I like to do this weekly, then it just becomes kind of habitual.