Sinking funds are saving accounts that are set up for a specific purpose.
During the year, different bills and life events come up. If you plan for them, then you don’t have to worry about how you will pay for it.
I have several saving accounts in a high yield savings account. I give them specific name instead of Savings 1, Savings 2, etc.. If you are better at tracking every dollar, you can have just use one account.
The different sinking funds I have are:
1. Vacation Fund- I love to travel so making sure I have hotel and plane ticket money on hand is important.
2. Emergency Fund-3 to 6 Months of expenses, right now I have only 2 months of expenses but always adding to it.
3. Gift fund- I save up for birthday gifts and Christmas gifts
4. Car Fund- car repairs, car insurance, registration, emission testing, replace tires and car taxes
5. Entertainment account- I like going to the movies, or going to eat with my friends, and see a concert. So, I put money aside for whenever I want to do that.
Do you have any of the same savings accounts as me?
Here are other categories you can save for:
Yearly/Quarterly Bills-Water bills, sewer bill, memberships such as BJS wholesale or Amazon Prime, house and condo insurance
Home Fund– New Appliances or fix anything that breaks
Saving for Large Expenses– If you are saving to buy a new car or a new home, furniture, TV, phone or computer, Kitchen renovation, etc.
Medical Fund-If you don’t have HSA (Health Saving Account) or FSA (Flexible saving account), save up for deductibles, dental work, new pair of glasses or prescriptions.
Child Fund– Save up for summer camps, back to school supplies, sneakers or field trips.
Clothing Fund–
Baby Fund- Money to help pay during maternity leave. Also, items for the baby such as pampers, clothes, formula and etc.
Make sinking funds personal to your lifestyle and what will work for you. You can save for anything. It is better to save up instead of using a credit card and paying interest on an item. Credit cards should not be used for emergency funds.
Saving for an item, gives you something to look forward to and makes you realize if you really want it.
First, I would save up for your emergency fund before funding the different sinking accounts. Right now, I have about 2 months of expenses in my emergency fund. I will continue to add it so I can have at least 3 months of expenses in my account before I start paying off debt again. I would like to add another saving account for the yearly and quarterly bills. It’s all baby steps, so don’t overwhelm yourself.
What sinking funds do you have?
