Something that I always mention when I talk about budgeting is how much we swear by our sinking funds. I keep saying over and over that I am going to do a post to detail our sinking funds since we love them so much, go over the purpose of them more in depth than I did in my budget spreadsheet post, and share some tips on how to manage these “mini” accounts.

Well friends, today is that day! I am so excited to share such a major portion of why our budget works with you. You can check out the following video to see me walk through these things with you, and below I have my main points for sinking funds that you will find valuable!

WHAT THE HECK IS A SINKING FUND?

Sinking funds are made for those items that may not be monthly charges, but they are periodic needs that you will have in a specific category. We choose to put money into specific sinking funds monthly to reduce the amount of random charges that will come up as a “surprise.” When we have to make a purchase that falls into these categories, we just subtract the amount from these “mini” accounts instead of wondering where the funds will come from or having to choose between paying a bill and making an important repair or purchase.

Sinking Funds will really be set up per your own family’s needs. Go back through your finances or look at your life and think of expenses you have that don’t fall into your regular monthly spending. Below are some sinking fund ideas to get you started, beginning with the ones we have added to our expenses:

SINKING FUND EXAMPLES

• Insurance– We save all year to pay our insurance premiums up front to save cost and reduce the monthly bill!
• Car Maintenance– We both have pretty new cars, but we need routine oil changes and have some minor issues every now and then. If you have an older car and don’t make a payment, I suggest putting more aside!
• House Maintenance
• Gift-Giving– This goes for all gifts we give others, including Christmas, Birthdays, Baby Showers, etc. We actually have a spreadsheet that shows how much we spend per person per event, and we are doing our best to stay on track with that. Based off that spreadsheet, we have come up with an amount to put away monthly.
• Holiday Events– We do Friendsgiving every year, so I like to put aside money for that instead of taking the hit all in the holiday month. If you host a Christmas or other event, then you can save year-round and reduce the holiday stress!
• Pets– You never know what’s going to come up with your pets. We just had a flea outbreak, so we had to get flea medicine, but the amount we put away can be for yearly checkups and more!
• Medical– This can be used for co-pays, medication, etc. If you have ongoing medical issues, you may want to up this amount, but my husband and I are generally healthy and low maintenance, so we just add a bit for now!
• Vacation/Travel– We love a good road trip! Right now the budgeting is tight, so we have a minimal amount being put in this sinking fund, but once our debt it paid off, we will begin putting more into the fund when we decide on a vacation!
• Couples’ Fund– This fund goes to gifts for each other as well as Anniversary, Birthday, and Valentine’s Day celebrations!
• On-going Family Needs- This fund could be used for things like dance class payments or sports team enrollments. We just started one for our family because with an infant, they grow out of clothes pretty quickly. Besides that, you never know what’s going to pop up that you need for a child!

OTHER IDEAS

• Wedding
• Cosmetic
• House Down Payment
• Car Down Payment
• College Tuition
• Children’s Savings
• Miscellanious
• Utilities
• Education Fees
• Major Purchase (Computer, TV, Fences, etc.)

HOW TO GET ORGANIZED

For us, we keep the money in a separate checking account that has its’ own debit card. So if I am going to get my oil changed, I can grab that card and then the money comes from that account. I go into my sheet that tracks how much is in the CAR sinking fund, subtract the amount, and we are good to go.

I do not make it too complicated, though. If I am at Target buying groceries and happen to pick up a toy for my niece for her birthday, I do all one transaction, then I transfer the amount I spent on the toy from the Sinking Fund checking account to our regular account. We have found that it works well as long as you are very strict with how you spend those funds and tracking once you have spent.

Alternatively, if you know you cannot swing keeping everything separate in the same account you could have an account for each fund (if you have a bank that doesn’t have fees and allows this) or you could make an envelope system for the sinking funds. (See sample above.)

I really hope this all helps explain sinking funds a bit more for you all! I urge you to start with just one or two and expand from there! The easiest ones to begin with would be for car maintenance or a small fund for a holiday. The hardest ones, but most rewarding financially and for your sanity would be the insurance yearly fund and all presents across the board.

Let me know if you would be interested in seeing how I organize our presents sinking fund to ensure we do not overspend on others while trying to get out of debt! It’s actually so helpful and freeing!