Steve and I started incorporating a sinking fund line item in our budget about six months ago. Oh. My. Gosh. Why haven’t we started this sooner?
So, if you don’t know what a sinking fund is, it’s an amount of money you save every month (or week, two weeks, whatever) for expenses that only come up once in a while. We all have bills like insurance, oil changes for our cars, and things that are only paid every few months. We know they are coming so instead of flying by the seat of our pants, we need to plan for them.
Here are the categories we have in our sinking fund currently:
- Car insurance
- Renters insurance
- Amazon Prime & music membership
- Car maintenance- tires, oil changes, etc.
- Dogs- vet visits, medications and grooming visits
I’ve found that saving a little bit towards each of these things makes it sooo much easier to pay for big expenses without it cramping our cash flow for the month.
It’s easy to do because it’s not some huge amount, but it really does make a big impact. It’s nice to have the money set aside and ready to go.
Here’s how I did our sinking fund calculations:
- List out of the expenses you need to save for (and when they are due)
- Put the yearly amount next to the item (or a reasonable amount. For example you may want to save $30/month to save for gifts for others)
- Divide those figures by 12
- Add them up to get a monthly total
- Stash that amount in a separate account every month
- Keep a running tally of the money going in and going out
Here’s an example that’s very similar to our sinking fund:
- Car insurance- yearly: $564 / monthly: $47
- Renters insurance- yearly: $150 / monthly $12.50
- Amazon- yearly: $200 / monthly $16.66
- Car maintenance: $500 / monthly: $41.66
- Dogs- yearly: $1900 / monthly: $158
- Gifts- yearly: $350 / monthly: $29
Total monthly sinking fund savings: $304.82
It’s as simple as that!
You can make a sinking fund for anything you want. It doesn’t have to strictly be for expenses. You could include a vacation, home renovations or any type of shopping you might want to do in the future.
I used to just save as much as I could into one savings account every month. Then, when big expenses came up, it was painful to have to take money from the account. Now that I’ve done more planning and am not lumping all the funds in one place, it feels a lot more under control.
Do you use a sinking fund? What are you using it for? Comment below=)
“A simple fact that is hard to learn is that the time to save money is when you have some.” – Joe Moore
Thanks for reading,