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Having the essential sinking funds in your budget will set you up for success.
Unexpected expenses or special occasions can derail your budget goals. The best way to prepare for the unexpected, or the expensive, is to save a little at a time, so by the time those big expenses come up, you’ll be ready for them!
A sinking fund is a perfect way to plan for future expenses without busting your budget.
Keep reading to learn what a sinking fund is, how to calculate a sinking fund for your goals, and discover 75+ types of sinking fund you should have in your budget!
What Is A Sinking Fund?
Sinking funds take the stress out of spending. It is a savings fund different from your emergency savings fund or traditional savings fund.
A sinking fund allows you to tuck away money over time and eventually put the money you saved towards a big purchase such as a new car or a down payment on a home.
You decide a category for your sinking fund, calculate your monthly contribution needed to reach your goal, and set aside money over time, so when an expense pops up, you’ll be prepared for it!
Benefits Of A Sinking Fund
Sinking funds allow you the freedom to spend money on things you want or need without wrecking your budget or savings goals.
You can use a sinking fund to prepare for life’s surprises or save for a lavish vacation.
Additionally, sinking funds give you the freedom to spend money without derailing your financial goals.
For example, planning for Christmas expenses the whole year takes the stress out of the holidays and allows you to focus on spending time with your family.
Starting a sinking fund is easy! You just need some preparation and discipline to build a sinking fund for stress-free spending.
Sinking fund versus emergency fund
Sinking funds are different from your emergency savings fund. Check out this article to know more about the differences between sinking funds and an emergency savings fund.
Essentially, a sinking fund allows you to prepare for an upcoming, planned expense. In comparison, an emergency fund is a money set aside for unplanned expenses like loss of income or medical emergencies.
You should save at least 3-6 months of living expenses to keep in your emergency fund. It is very important to set up sinking funds, so you don’t drain the money in your emergency savings fund.
The Sinking Fund Formula
Unsure how to set up your sinking fund savings plan? Don’t worry! You can use the sinking fund formula to calculate just how much to put away each savings period.
To be able to use this sinking fund calculator and determine how much to put aside each pay period, you need the following:
✔️ Dollar amount of your end goal
✔️ Interest rate (if you’re putting the money in a high-yield savings account of CD)
✔️ Number of payments you need to hit your savings goal
How To Make The Most Of Your Sinking Fund
Choosing a sinking fund category is a great start! Once you decide which big purchase you want to save for and have calculated your sinking fund contributions, you’ll need to track your sinking fund to ensure your success.
And there are a few options to make tracking your sinking fund a breeze.
Additionally, I recommend opening separate savings accounts for each sinking fund you have. Separate accounts let you stay organized and disciplined with your sinking fund contributions.
Also, leaving that money in your checking account could tempt you to spend it instead of saving it!
And if you are saving for a longer-term purchase, you can use a high yield savings account or CD as your sinking fund, so the money builds interest. Leverage interest and let your money work for you!
I use Capital One 360 Savings for our sinking funds, and it works really well for us.
Types of Sinking Fund
So, if you’re still unsure how to apply sinking funds to your budget, here is a list of 75+ types of sinking funds that you should have in your budget.
You may not use all of these sinking funds, but incorporating some of these sinking fund categories to your budget will help you take control of your spending and reach your financial goals.
Here are some types of sinking fund to jumpstart your savings plan:
Family Sinking Fund
Building a sinking fund is one of the best things you can do for your family’s financial future.
From planning for a baby to saving for your child’s college tuition, these sinking funds will help you structure your family’s spending needs:
- School Fees
- Clothes and Shoes
- College Tuition Savings
- Sports Registration Fees
- Labor & Delivery
- IVF Treatment
- Children’s Insurance
- Braces Fund
- Adoption Fees
- Baby Food and Diapers
Pet Sinking Fund
Pets are wonderful companions, but they can be expensive! Anticipating pet-related expenses will help your budget stay on track. Here are some sinking fund ideas for your furry family members:
- Pet Insurance
- Grooming and Boarding
- Treats and Food
- Vet Visits
- Electric Fence Costs
Home Sinking Fund
Whether you are working towards buying your first home or preparing for a home renovation, homeownership is expensive!
These sinking funds are perfect for preparing you for your home’s expenses:
- Interior Decorations
- Down Payment (if you’re planning to buy)
- Security Deposit (if you’re planning to rent)
- Property Taxes
- HOA Fees
- Landscape and Lawncare
- Home Maintenance (New air conditioning unit, roofing, etc.)
- Home Insurance
- House Cleaning
- Pool Maintenance
Transportation Sinking Fund
Transportation expenses can sink even the best-planned budgets if you do not factor in these costs into your sinking fund plan:
- Car Insurance
- New Car
- Car Maintenance (Tires, oil changes, new battery, etc.)
- Tags and Registration
- Tolls and Passes
- Recurring Transportation Fees (Bus fare, Ubers, etc.)
Travel Sinking Fund
You can plan your dream vacation without disrupting your savings goals. These sinking funds will help you reach your savings goal so you can have a relaxing holiday.
Here are some travel-based sinking funds to consider for your next adventure:
- Plane Tickets
- Cruise Fare
- Theme Park Admissions
- Rental Car
- Travel Shopping
- Sightseeing Costs
- Travel Insurance
Medical Sinking Fund
Medical expenses definitely require sinking funds! Many people think an emergency fund will cover their medical costs, but I would advise you to reserve your emergency fund for unplanned medical expenses.
Instead of using your emergency fund for copays or prescriptions, factor those costs into a medical sinking fund.
Here are some routine expenses to include in a medical sinking fund:
- Lab Tests
- HSA Fund Contribution
Professional Sinking Fund
If you are a contractor, you may need to set aside money for income tax or save for career enrichment training.
If you plan to start a new business venture, calculate your start-up costs, and begin saving for them today.
Here are some sinking fund ideas to cover career-related costs:
- Income Tax Contributions
- IRA Contributions
- Other Investment Funds
- Home Office Supplies (Microsoft subscription, printer ink, etc.)
- Professional Licenses and Renewals
- Training Courses
- Business Start-Up Costs
Event Sinking Fund
Holidays and special occasions can wreak havoc on your budget if you’re not adequately prepared for them.
Planning for birthday parties or big events ahead of time takes the stress out of financially planning for these big days, so you can focus on enjoying the moment!
These sinking funds can help you do just that:
- Birthday Fund
- Anniversary Fund
- Christmas Gifts
- Baby Shower Expenses
- Bachelorette/Bridal Party Fund
- Wedding Expenses
- Holiday Gifts
- Graduation Gifts
- Sympathy/Get Well Soon Care Packages
Personal Sinking Fund
These sinking fund ideas will help you track your personal spending while responsibly rewarding yourself for all of your hard work.
If you save and plan to buy big technology purchases on Black Friday or Cyber Monday, you could save hundreds of dollars by using the money in your sinking fund and buy the item you need on sale.
Having a sinking fund set aside for personal expenses allows you to capitalize on great deals!
These are some must-have sinking funds for your personal expenses:
- Online Courses
- Subscriptions (Netflix, Hulu, Amazon Prime, etc.)
- Memberships (Gym, Country Club, etc.)
- Technology Upgrades
- Self-Care (Yoga classes, Books, Candles, etc.)
- Personal Grooming (Haircare, facials, manicures, and pedicures, etc.)
- Date Night
- Fun Money
- Tithing/Donations (Church, charities, etc.)
Final Thoughts on Sinking Funds
Now you know what a sinking fund is, how to calculate a sinking fund for your specific needs, and which categories of sinking funds will best fit your budget.
Incorporate some of these sinking fund categories into your current budget, and be prepared for anything.
Which types of sinking fund are you adding to your budget?
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