After budgeting throughout the year I would notice irregularities in Bill’s that would pop up. Have you ever been non prepared to pay for a tax bill? Or an unexpected expense? I know I have! It’s not like I didn’t know that I would have needed to pay it, it just wasn’t on my radar every month, so what do I tell myself? I’ll take care of it when it gets closer to the due date. When the due date comes, here goes another bill I didn’t budget in for the month. I needed a solution to this issue. Then after doing some research I noticed that most of them are what we would place as a sinking fund.
Newly getting to learn about budget, you be asking yourself: What is a Sinkingfund? It’s like having additional savings accounts for miscellaneous expenses. Thes funds are planned strategically for a purpose, generally, you will save them slowly each month. You can create many sinking fund accounts as you want. Give them a name and purpose and fill them until you reach your goal amount.
Sinking Funds vs. Savings Account
Is a sinking-fund like a savings account? kind of but not really. Its made like a savings account as you are putting money aside aka saving it. A sinking fund has a targeted purpose and an amount in mind for the category you are saving for. In a traditional savings account you are putting a portion aside for emergencies or to have some cushion room for normal expenses. When you’re saving for a future expense or goal, then it becomes a sinking fund. Some might ask, what is I want to save for a new car or for a home, or just to save XYZ by this time.
Those ideas listed above can come from your savings account but it’s better to create a sinking fund separate to reach your desired amount. In this case, you are not touching something you would use for emergencies for something you want. Sinking funds can also be considered bills or expenses guaranteed to come regardless if you save or not. Even if you don’t buy clothes every month, buying clothing is a future expense, and don’t like paying for Car registration? Me neither but it will come due (well, for me anyway) whether I want to pay it or not.
What are some expenses I can create a Sinking fund for?
- Home Repairs/ Maintenance
- Car repairs/ Maintenance
- New Home / Car
- Vacation/ Travel
- Holiday Expenses ie. Christmas, Thanksgiving
- Summer Camp/ Sport events/ Activities
- Birthday Gifts/ Personal Gifts
- Medical Bill’s
- Baby showers/ Weddings
Funding your Sinking funds
Start by writing down a list of categories you think you might need to create a sinking fund. Everyone’s life is different so you might have something that is not on the list above. If you’re entrepreneur you might have different yearly expenses versus someone that works an hourly or salaried job. As a parent you might have more education expenses or activities to pay. Take the time to jot down all your ideas. Still think your missing something? Look at your bank statement from all of last year and highlight irregularities. If this expenses are going to generate again within the next five years, create a sinking fund for it.
Now that we have our categories list, time for the money. Give each section a dollar amount limit for funding. Depending how much time your giving yourself to fill this fund, less money will be contributed each month. If placing money into all the funds every month sounds overwhelming, do one at a time. When one funds is filled move on to the next. You can set your own direction when it comes to this method. Prioritze them based on amounts, smallest to largest or order of scarcity. Which one is more important? Which one do I need to have filled sooner rather than later?
Doing the Math
After doing your budget, you’re ready to decide how much you sending over to your sinking funds. Don’t be discouraged if you start with a small amount, every little bit counts. After a while, you will see the funds add up. Whatever your amount is, whether it’s $50.00 to $100.00, divide it up and send it to your sinking funds. As mentions above make decisions based on importance and amount. I get paid personally on a bi-weekly basis so I send money over to my sinking funds ever 2 weeks. My first paycheck I can’t spend too much because my larger bills come out earlier in the month. The second paycheck I’m able to give more because most of my bills are paid.
Create a Several Savings accounts
You can use separate methods to create the sink funds, additional savings accounts from your bank. Most banks allow you to create additional savings accounts at no cost. Go to your bank’s website or call your bank and find out how many accounts you can create for savings and label them with your sinking fund categories. Every time you receive a deposit, you can easily transfer funds to the accounts. If you’re an automatic person, you can designate an amount to send automatically be rescheduling this to your bank. This method is best for busy people, out of sight out of mind.
Use cash envelopes for your savings
Secondly, you can use a cash envelope method. If your a cash envelope budgeter, you can create additional envelopes for your sinking funds. T think of these like money pots. Fill them with cash every time your receiver your paycheck, and of course after budgeting. On the back of the envelope, made a tally section, where you write down what you added and date, and total balance. If you still want to try cash envelopes digitally you can start the app or website call Goodbudget. Go to Goodbudget can create additional envelopes where you can record the savings digitally and keep track of your goals.
New to The Cash Envelope Budgeting Method? Click here to get started!!
The Cash Envelope System
You can save this picture below, cut it out, and paste it on the back of the envelope or I prefer the front because there’s more space. Write your category at the top and fill it out every time.
Lastly, you can use a money-saving app like my favorite Digit. Digit automatically saves for you throughout the month. The intelligence and ease are from how is monitors your spending to decide on how much to send over. It will never take money to overdraft your account, in fact, it will send money over to prevent your account from overdrafts. You can create multiple saving categories, label them with emojis, and make the desired amount. By creating a due date for each section, Digit will save certain amounts according to when you need it saved by. I tend to transfer manually an amount when I get paid. When your funding needs to be used, transfer back to your account easily with no fees. It will appear in your account within 1-2 business days.