Sinking Funds That Will Make You More In Control Of Your Money

Wanna know what sinking funds are? Here’s what you need to know about.

Sinking Funds is probably a term you’ve never heard about before. But, it is the smartest way to save money, especially for recurring BIG expenses like going on vacation every year.

There is no better feeling than having the money readily available to use for that large upcoming expense. Versus agonizing, scrambling for money, or even going further into debt.

You are going to learn all about sinking funds meaning and examples to how to set up sinking funds, and more.

After learning all about these sinking funds, you are going to be extra prepared when dealing with upcoming large expenses that are planned.

This post is all about sinking funds.

Sinking Funds Definition

Is the money that you set aside each time you get paid. You can set aside as little as $10 each time you get paid to fund a certain sinking fund.

First, determine your future expense. Then, intentionally set aside money each month toward a big financial expense.

(In other words, you’ll be saving little by little for a planned expense in the future).

Sinking Fund Example

Let’s say, you want to go on vacation next year. First, determine how much it will cost. Then, divide the cost by the number of months you want to save for it.

Maybe your dream vacation costs you $1,200 and you want to go in a year from now. You would divide $1,200 by 12 months, which equals $100. That means, you have to save $100 dollars every month toward your vacation sinking fund.

See, it’s not that difficult setting up a sinking fund. And the best part is that you’ll get to enjoy your vacation without going further into debt. Or coming back home with a maxed out credit card.

Sinking Funds List

(Sinking Funds Categories)

You can customize your sinking funds categories to meet your needs. Remember, sinking funds work great for things you can’t afford to pay just using your paycheck.

Sinking funds can be anything like:

Taxes
Vacations
Car Maintenance (like oil change, tire rotations, brakes etc)
Events (like an anniversary, baby shower, or a weekend beach trip)
Car Insurance (you can pay it once a year and save TONS of money like me)
Emergency Fund
Any foreseeable large expense that can break your budget.

Essential Sinking Funds

I’m sure you can come up with a never ending list of ideas for sinking funds. But, you have to prioritize your sinking funds. And make sure they align with your financial goals.

Here are some sinking fund examples that you can prioritize. Let’s say you want to contribute every single month towards your sinking funds…it would look like this:

$50 towards Your #1 Financial Goal
$30 Car Repairs Sinking Fund
$100 Emergency Fund

After 1 year of savings, your sinking funds would grow to:

$600 for your #1 Financial Goal
$360 for car repairs
$1,200 in your emergency fund

See how much progress you can make month after month, without breaking your budget? The idea is to save some money for a specific expense. Once, your sinking fund is fully funded, you can then start another one.

{CHECK OUT: How to Save $100 This Week}

Cashless Sinking Funds

If you hate going to the bank every time you get paid to withdraw cash to fill up your sinking funds envelope, as much as I do, you have to try the cashless method.

All you do is transfer money out your main checking account on pay day. You have the option to have multiple free checking accounts and free savings accounts.

You can treat your sinking funds as if they were bills that you had to pay. So you can trick yourself into saving some money.

For example, on pay day I always transfer $50 into another savings account dedicated for car maintenance sinking fund. Since that money sits at another bank account from my regular checking account, it’s out of sight and out of mind. It just grows.

To make your cashless sinking funds work, you gotta have multiple bank accounts.

I have several savings account thru different banks. So far, I have 3. I have my cashless sinking funds account with Ally Bank, (totally recommend). I like it because it has different buckets. So you can separate your sinking funds into different categories.

With that Ally account I have like 5 sinking funds. And whenever I need to use the money, I just simply transfer it back to my main checking account and use it. (I don’t ever use cash sinking funds).

I have another savings account thru Marcus by Goldman Sacs. That account is just where I keep my emergency fund. (Which I treat like a sinking fund because I always send at least 10% of my paycheck there every time I get paid).

The third savings and checking account that I have that’s free of charge is the one that Suze Orman suggests. It’s thru Alliant Credit Union.

That’s where I currently have a new-to-me car sinking fund. I’m saving every month little by little some money to fund a used car for the next few years. So when mine breaks down, I’ll have the money to replace it. My goal is to save up $3,000.

I have several bank accounts because I don’t like to use cash. But I do like to separate my expenses. Because I don’t like leaving my whole paycheck sitting in my regular checking account and then wondering where it went.

I like to be very intentional with my money and hit my financial goals. And, I follow the high 5 banking method from Sahirenys Pierce, if you’ve never heard from it, it’s genius, you gotta check it out.

In conclusion…

A sinking fund is just breaking down a large financial goal into smaller, into bite size pieces. It’s simply saving a little bit of your paycheck for a planned expense in the future. It’s not an emergency fund, where you have to pay for something unexpected.

Now it’s your turn to get specific and decide what events or goals are coming up that you need to start saving up for. You can start saving money aside for big life events like a wedding, buying a house, or a car.

After you get specific with your financial goals, take action. Actually do it. Decide what amount needs to be transferred each time you get paid. And automate your savings. Check in and tweak as necessary throughout the year.