A sinking fund is a strategic way to save for something specific. You create an account or have a cash envelop dedicated to that fund, and you save until you have what you need for your purchase! Sinking funds are a great way to categorize your savings, have what you need for future expenses, and take the pressure off to pay for everything all at once. I’m going to share 10 sinking funds to include in your budget. You don’t have to have all of these funds at once, but you’ll want to consider having them each at some point in time.

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10 Sinking Funds to Include in Your Budget

#1 Christmas

Christmas is the perfect example of a sinking fund to set up and save for year over year. Because we know the exact day Christmas comes, we can financially prepare for it ahead of time. Whether you choose to set up a savings account or have an envelope dedicated to your Christmas savings, start putting money towards it as soon as you can.

#2 Important Birthdays and Events

Similar to Christmas, if you have specific birthdays or events you spend money on year over year, you can create sinking funds for each. Try to save as early as possible for birthdays and events, so you don’t have to put too much aside month over month. By the time the event comes, you have the money you need to help pay for it.

#3 Car Maintenance

While car maintenance doesn’t have a specific due date, it is something that we know will come. Car maintenance and repairs are inevitable, so dedicate a specific amount to this sinking fund month over month until you need it. If you don’t have a car, then disregard this particular sinking fund.

#4 House Repairs

The same theory as car maintenance applies to house repairs. We don’t know when the costs will be coming, but we know they will eventually come. Plan and save ahead of time to ease the financial burden of these costs when they do come. Again, if you don’t have a house, you won’t’ need this sinking fund. You can, however, set up a house purchase sinking fund to help you start saving for your down payment.

#5 Pet Expenses

Furry friends sure are a blessing, but they do come with expenses. Set up a sinking fund dedicated solely to the costs of your pet or pets. This fund can help cover their food, medical bills, grooming, or any other expense related to your pet.

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#6 Gifts

Creating a sinking fund for gifts, outside of normal birthdays and Christmas, helps set your budget up for success. We don’t know when our friends or family will be getting married, having kids, or graduating. That doesn’t mean we can’t plan for those things ahead of time! 

#7 Travel

Travel is something everyone should experience throughout their lifetime. Travel costs money and should be saved for ahead of time to help you make the most of the experience. Even if you don’t have a trip or vacation planned, start saving for it now. I have no doubt it will come!

#8 Medical Expenses

If you are not contributing to an F.S.A or H.S.A through your employer, then you will want to have a sinking fund set up to cover unexpected medical expenses. Insurance is a great help, but it doesn’t always cover everything. There will come a point in time where you or someone you love will need to pay for medical expenses out of pocket, so start saving for it now.

#9 Electronics

Do you like to stay up to date with the latest in technology and electronics? It seems like there is always a new phone, new computer or new gaming system coming out. To stay ahead of the curve, establish a sinking fund for electronics and technology. This will allow you to take advantage of staying ahead of the curve without worrying about how it will impact your budget.

#10 Annual Expenses

Whether you pay for subscriptions a year in advance, pay 6 months’ worth of your car insurance, or have any other gap in time before you pay for something, you can plan ahead for those expenses. Open a savings account specifically for annual expenses so you aren’t surprised when they come up for renewal year over year.

How to Determine What to Save

When you are ready to set up your sinking funds, you’ll need to make sure you are contributing the appropriate amount to those funds’ month over month. Here are a few steps to take to ensure you are set up for success:

  • Take the total amount needed
  • Take the total time before you need that amount
  • Divide the total amount by the total number of months
  • Save that amount each month until you need it

If you can’t afford to save for everything all at once, do what you can. Focus on the most important or time-sensitive sinking funds first. Once those are covered, move onto the less important funds. It will take some trial and error, but eventually you will get into a groove with your savings.

If you’re struggling to allocate your income properly, schedule a free consultation with me now and let’s work through it together!

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Related: 8 Things Everyone Should be Saving For

Sinking funds can come in handy, but you have to plan in advance. Anything you’ll need money for in the future could be saved for with a sinking fund. There’s no limit on which sinking funds to have or how many you can have. What sinking funds do you currently have in your budget? What sinking funds will you set up a next? Post a comment below to share your thoughts and tips!

-Raya
The CGS Team

Raya ReavesFounder; Financial Consultant