Sinking Funds and Why You Need Them

Let’s talk about sinking funds and why you need them. You all know by now that I am obsessed with budgets and budgeting. So today I want to share with you one simple thing I have done to help keep my family from busting our budget. Sinking funds. Simply put, sinking funds are separate savings accounts where you put money for irregular expenses. Examples include:

  • vacation
  • new car
  • Christmas
  • car insurance
  • new HVAC
  • birthdays
  • vet bills
  • home expenses
  • car expenses

The list can be extensive and truly, anything can be a sinking fund. So, how does it work? Let’s use vacation as an example. You know that you are taking a vacation in July. The vacation costs $3,000. In January, you make a sinking fund plan to fully pay for your vacation.

$3,000 divided by 7 months(Jan to July) = $429.00 per month

Using a sinking fund helps you plan for items in the budget that are not regular (meaning every single month), but that you know are coming. If you celebrate Christmas, then you know that it comes every single year in December. Listen, I have paid for Christmas on credit before, and come January when that bill comes, the holly jolly is over. I have learned that saving a little each month helps to keep me on track and makes paying for Christmas a breeze.

So, here is a little bit about sinking funds and why you need them. Tell us, what is something that you are saving for?

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