Everyone knows that you need to have a savings account, but does everyone know that they need to have sinking funds? 💰 Nope. Everyone has unexpected expenses, maybe the dog got sick and needed to go to the vet, maybe the hot water heater died, maybe your kid asked to join soccer and you obliged, not realizing there’s a lot of start-up money for supplies and fees, these examples are where sinking funds can help you.
In this post, we will discuss sinking funds, why you need them, how to track them, and I’ll even give you a free tracking printable at the end! Let’s dive in!
WHAT: Sinking funds are an amount of money that you put aside for expected, but not regular bills. It is also not your main savings account. Tapping into your savings account is for emergencies, of which your water bill is not one. This is why sinking funds are perfect. The idea of having sinking funds is to help you avoid dipping into savings or going into debt to pay off irregular or future expenses.
WHY: Everyone has unexpected expenses. In the coming weeks I am sure that you will have an expense that comes up that isn’t part of your typical budget. Your kid wants to join art club and there’s a $50 fee, your sister announces she’s having a baby and you want to plan the baby shower, etc… When people don’t have these sinking funds accounts for the unexpected, they are more tempted to reach for the credit card, savings account or blow through their normal budget. By having sinking funds, you’ve already planned for these expenses and can pay for them without the anxiety that can come with being unprepared.
An example of a sinking funds account is for car repairs- you know you’re going to have them, but don’t know how much or when you will need it. This is where sinking funds come in handy, for example, I have a $1,000 sinking fund account for my vehicle. I drive a Ford Expedition EL (picture a Chevy Suburban, almost the same), repairs are not cheap on these big vehicles. Up until recently I only had $500 on my sinking funds, but recently I hit the 125,000 mile marker and my manufacturers warranty expired. That got me thinking, how much do I need now? Tires alone on my SVU are $800 or so after mounting, so having $1,000 in my car sinking funds just makes sense. It doesn’t necessarily make sense for everyone, especially those with smaller vehicles or those vehicles that are still under warranty.
Examples of common sinking funds categories:
There is no hard and fast rule for what sinking funds you have to have. You do you boo, whatever you need to do to feel comfortable and confident in your sinking funds is what you do!
Now that you know what sinking funds accounts you need to create, you’re probably wondering how do you keep track of them? I got you!
Tracking Sinking Funds- there are many different ways to track your sinking funds. What I personally do is :
Keep a spreadsheet
Keep separate bank accounts
My favorite resources from other bloggers and different resources are listed below!
FREE Sinking Fund Charts - Sunshineandrainydays.com
Capital One 360 Accounts- https://www.capitalone.com/bank/www.capitalone.com/bank/
Forbes- 6 Reasons to start Now- https://www.forbes.com/sites/jimwang/2020/01/24/6-reasons-to-start-a-sinking-fund-now/
TL;DR Every financially stable person needs to have a sinking funds plan that they follow and keep track of to help them stay out of debt and plan for the future.
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Single Mom to 3 💁🏼♀️
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