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 Tharyarwady 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. [Read more…]