I don’t know about you but more times than not I get caught up in the busyness of life then WHAM! I get hit with an unexpected, seemingly out of the blue expense. When in actuality, this expense occurs every year on the same day— I just completely forget and don’t plan accordingly. This is where a sinking fund comes into play. With a sinking fund, you save in advance for expected and unexpected expenses. A sinking fund can take on different meanings for each person. Some would consider very well thought out and planned sinking funds to be your emergency fund; as noted in the book “You Need a Budget.”
While others would consider sinking funds and an emergency fund to be two separate things. Personally, I consider an emergency fund and sinking fund(s) to be two separate things. I like the idea of having targeted savings goals while also having a fund that can cover the things I didn’t think of or that come up out of nowhere. Having a few segregated targeted savings accounts plus one big general account takes the pressure off you because you don’t need to stress about having to account for every single life scenario. Sinking funds serve as mini lifelines for folks that don’t always have the cash to cover large expected/unexpected expenses all at once.
For instance, we all know that major holidays like Christmas and Thanksgiving have happened on the same day, every year since we were born. So why is it that every year these holidays seem to “sneak up” on us? Leaving us scrambling, each year, to figure out how to pay for all these back to back festivities.
Better planning and reprioritizing can help reduce the stress of the last minute holiday scramble and reduce the stress. Since I’m working on becoming debt free, I try to plan as far ahead as possible in order to not get slapped with an “unexpected” expense. I say “unexpected” because if you sat down to take an inventory of all the big ticket items you shell out money for each year, it wouldn’t be so “unexpected.”
Expected vs Unexpected
Expected sinking funds are things you know you will need to pay for each and every year. You usually have a general idea/plan for how much it will cost. For example, your car insurance comes out to roughly the same amount every year. Same goes for Christmas, generally, you should have a budgeting number in mind. These are a few examples of expected sinking funds— generally, you’ll know how much these things will cost or at least have an idea of how much they will cost in advance. For unexpected funds or general funds, you may not know how much the wedding you plan on attending in the fall will cost or how many times your future self will go to the doctor. These are the sinking funds you can save a general amount for. It’s not too general in a sense that it’s completely unexpected and something you didn’t think of in advance but it’s also something you aren’t entirely sure of such it will cost.
To help y’all out with planning your sinking funds or to give you some more ideas around additional sinking funds, here is a list of 15 sinking funds you should consider or remember each time you sit down to work on your budget:
1.) Christmas
Folks, if you didn’t know, Christmas has come on the same day every year for over the past 2,000 years! While I didn’t start really grasping the sinking fund concept until I started my debt free journey, the past two years have been awesome. The best way to approach this fund is to jot down all the people (family, friends, coworkers, etc) you will be buying gifts for and list them in order of, for lack of a better word, priority. If you know you’ll have a few white elephant parties to attend, leave those towards the end of your list. Figure out a general amount you want to spend overall and then allocate the money to each person you wrote down. This will need to be adjusted over the year but at least you will have an idea of how much you need to have saved by October. Start this fund early!
2.) Car Maintenance
In my post, The Importance Of An Emergency Fund, I mentioned that I have a car maintenance sinking fund that I fund up to $500. I figure $500 bucks can cover a slew of things over the course of a year like oil changes, a tire or two, brake replacement, or one big expense. This is one of those categories that is not a one size fits all. Consider the age of your car, how well you take care of it, and the state you live in to come up with a determine of how much will be appropriate to save based on your situation.
3.) Thanksgiving
Food during the holiday time can get super expensive, especially if you are hosting. Thanksgiving can also be costly if you are traveling to another state to spend the holiday with other family members. Consider your list of food, if you’ll be hosting this year, or if you’ll be traveling when you set up this fund.
4.) Birthdays
Is it just me or does it feel like as you get older, there seem to be a million bazillion birthdays you need to celebrate? You have kids parties and milestone parties that of course, you want to attend, but at some point, they can be overwhelming. Setting up a sinking fund specifically for birthdays is a great way for you to be able to enjoy your friend’s birth rather than dreading another money soul-sucking celebration.
5.) Medical
Healthy or not, medical stuff tends to creep up on us more often than not. Even if you have decent insurance, more than likely, you’ll still need to come out of pocket for copays, glasses, special exams, urgent care, etc.
6.) Vacation
My favorite sinking fund because it’s going towards my future vacation. Once you have a general idea of where you would like to go, start saving towards a general amount. After you start finalizing the details of what it will cost i.e. flights, hotel, activities, transportation, etc. Run the numbers and start figuring out how long it will take to achieve saving the amount of money needed to go. If it’s much longer than anticipated, consider reprioritizing your other sinking funds.
7.) Weddings & Wedding Gifts
I have a few very popular friends who are always making appearances at weddings on my feed. If you are one of those people that may know a lot of people or have a ton of friends getting married within the next year, start setting aside money now! I talk to my friends that attend all these wedding functions and they say it ends up costing them a lot. Prepare in advance for this by setting aside money each month to combat the high cost of being in a wedding and/or attending a wedding. Things to consider are travel cost, outfits, gifts, and accommodations.
8.) Bridal Shower Gifts
My coworker always jokes with me about this one, she says you are at the stage in life where everyone is getting married. I’m at the stage where everyone is getting divorced. If you are at the “engagement photos popping up on your Facebook timeline every 3 seconds” phase, then I suggest you get a jump on the game by setting up a bridal shower sinking fund. These gifts can get pretty expensive! Set this up as a rolling fund as you will need to replenish it throughout the year.
9.) Date Night
If you and your significant other rarely treat yourself or just enjoy doing things together a date night fund is a great way to work towards the same goal. If you’re on a tight budget, creating a sinking fund for date night is a great way to ensure you eventually reward yourself.
10.) Mothers/Fathers Day:
Mother’s Day is celebrated on the second Sunday of every May while Father’s Day is held on the 3rd Sunday of every June. Since this day happens within the first 6 months of the year, look to start saving no later than the end of January. This will give you 3-4 months of lead time to save for a gift, brunch, tools, you name it. Also, think head to major sales/great deals associated with President’s day in February. With a lot of major retailers running President Day sales and offering major discounts, that may be the best time to snag a gift for the low!
Some other funds to consider:
- Easter: Food, new outfits, and Easter egg decorating all cost money.
- Pet Fund: To cover vet cost etc.
- Summer Camps/Field Trips for the year/Summer Babysitter: If you have children and will be sending them to camp over the summer or spring break, start saving early.
- New Years: Tickets for select venues, buying food to celebrate at home or at a friend’s place, a new outfit, transportation cost etc.
- 4th of July: Fireworks and food aren’t free!
- General Travel Fund: To cover an unexpected plane or train ticket or even gas for a long trip.
- Anniversaries: Maybe your parents have a big year coming up!
- Baby showers: If you’re at the age where everyone around you is popping cute little fat babies out, then stock away for this right now! Baby shower gifts and putting one on for a friend can get expensive.
Once you’ve figured out what categories will be best to save towards, plan out the dates in which you will need the money by and the timing of the events. This will help you further prioritize your savings goals. Planning by Quarters
- Quarter 1: January-March
- Quarter 2: April-June
- Quarter 3: July-September
- Quarter 4: October- December
There are a lot of things, as you can see, that can compete for your money. Just remember that having a plan in place is better than having no plan at all. Consider this list if you don’t already have sinking funds set up, and prioritize maybe the top 3-4 things that give you the most trouble throughout the year. These categories should be the items that tend to sneak up on you more times than not.
Other Post You Might Enjoy
- What I Used To Pay Off $38,000 Of Debt in Less than 18 Months
- The 4 Pillars of Personal Finance
- Why Interest Matters
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