Sinking funds. What are they and when should you use one? A sinking fund is when you put money aside for a specific event. By now, all of you are familiar with my vacation sinking fund. I got tired of cash flowing my vacays in the month happened so I started putting aside $300 a month specifically for vacation. It’s been a great idea. I paid for A and I to go to Arizona back in May by using the fund and next week I’m going to Disney!
You can use a sinking fund for any event or item that you want. All you have to do is figure out how much you have to save and how many months you have to save for it. For example, a lot of people have a sinking fund for buying Christmas presents. Let’s say you spend $500 every year on presents. If you start saving in January, you only have to put aside roughly $42 per month. You can probably (hopefully) find $42 per month in your budget. But let’s say you’re reading this and you think holy crap that’s a great idea but obviously I didn’t start saving in January! Well there are three months til Christmas so now you need to save about $167 per month to reach the same goal. And since it’s only the 15th today, maybe you still have another paycheck coming this month that you could put toward the Christmas fund too! Now you have money saved up and will hopefully save yourself some stress too.
Another popular sinking fund is for auto maintenance. If you have an older car, it might be a good idea for you to start saving up for any expenses that might come up. I have an auto maintenance sinking fund. At my job, I get reimbursed for wear and tear on my car. When I was aggressively paying off debt, I used it to put additional money towards my debt. Now whenever I get my mileage reimbursement check, I pay myself back for any gas I used and then transfer the rest to my savings account. Right now, my auto maintenance account has about $900 in it. Last month it was up to $1,700 but I paid for a brake job on our truck. My husband had been driving around with the light on and the truck beeping aggressively at him for who knows how long because he apparently has a death wish. Fortunately, we got it all fixed up without having to stress about how we would find the money in our budget.
This account also covers my annual inspection and registration. My inspection/registration is due in December which I find incredibly inconvenient. I only started this sinking fund this year. In the past I’ve always just paid for it in December and it really makes my budget super tight. Between Christmas, inspection/registration, travel, Sirius XM, etc, December always ends up costing me so much. I’m looking forward to the reduced stress.
My last sinking fund is for our vehicle insurance. It doesn’t have very much money in it right now because I just paid our biannual premium. Our insurance is $680ish every 6 months. So I put aside roughly $115 per month toward this. This ends up being a little more than $680 but it helps cover if the premium increases. Budgeting is kind of funny though. While I was getting ready to write this, I thought, “why do I have a separate account for auto maintenance and insurance?” My mileage checks are generally at least $100 a month and sometimes they are more. I could probably combine these two accounts and free up some money in my monthly budget. I will probably start tracking my mileage checks and see if I could use them to pay my insurance too.
The last account included in the picture isn’t a sinking fund; it’s my emergency fund. It’s looking a little low because I took out $1,734 to make a fat payment toward my engagement ring. Hopefully my ring will be paid off next month! My stretch goal was to have it paid off this month but it just didn’t work out that way.
I track all my funds in the numbers app on my phone. I know some people open a different savings account for each fund but I didn’t want to keep up with all that. I have two different savings accounts: one for my emergency fund and one for everything else. Then I track how much is in each one with the numbers app. Each time I make a transfer I update the spreadsheet.