Sinking Funds 101 : My January 2019 Sinking Funds

If you haven’t read my budget post for January yet, pop on over there to check it out!

Let’s get started!

What are sinking funds?

Sinking funds are a separate account or section in your budget to set money aside for certain purposes.

Basically, you’re paying yourself first, rather than go into debt.

You know how you only pay your trash bill once every 3 months, that’s where a sinking fund comes in handy.

You can still budget to take that money out each month, without breaking the bank.

& then when it comes time to pay that bill on month 3, you’ve already got the money ready to go.

Smart, right?

Right!

What other categories are in my sinking funds account?

Car maintenance – need new tires or windshield wipers, you’ve got money for that!

Vacation – save up a little at a time so you can take the vacation you deserve!

Diapers – oh yes, the wonderful world of motherhood. Diapers ain’t cheap, put money away each month for them!

Animal expenses – food, grooming, the vet, doesn’t matter, it’s covered!

Why are sinking funds important?

Less chaos, less worry, less stress. Need I say more?

By using sinking funds, you’re breaking the paycheck to paycheck cycle and paying yourself first.

Therefore, staying ahead on your bills and unexpected needs.

The key is to keep track of each individual sinking fund category.

Don’t go spending money on clothes because you have $100 in your “Animal” category. You may need that $100 unexpectedly, forcing you to dip into your emergency fund.

And then your sinking fund is useless.

Get serious about this and your life will be forever changed!

Setting up a sinking fund is EASY when you you have a budget to go along with it!

How much should I put in my sinking fund?

It’s completely up to you, but a good rule of thumb is to take whatever amount you need and divide it by the amount of months you will be saving it for. And then, add that amount into each category every month.

For example, a new pair of tires probably costs about $300. Say you’re going to start saving next month so you can replace your tires in 8 months.

$300 / 8 months = $37.50 or $38/month

In 8 months, you will have the money to replace your tires without batting an eye.

On the flip side, say you want to save and keep $500 in your “Pet” category…

Start by saving $42 each month, and in 12 months you will have $504. If you want to stop at $500, that’s perfectly fine. It’s up to you.

Where do I keep my sinking fund money?

There are a few different options. If you like to stay digital I would recommend a checking/savings account.

I prefer a checking account because there is no limit to how many transactions you can make.

Savings accounts usually have a “tap-out” limit of 6 transactions.

I’ve also heard of people using cash envelope systems.

So it’s totally your preference.

MY JANUARY 2019 SINKING FUND ACCOUNT

Category	Begin	+	–	End
Animals	$0	$10	$
Car Maintenance	$0	$50	$
Tags & Inspections	($77.00)*	$175	$
Clothes (adult)	$0	$0	$
Clothes (baby)	$0	$0	$
Uniforms*	$40	$0	$
Diapers	$24	$0	$
Entertainment	$30	$0	$
Child Care	$30	$0	$
Home Maintenance	$0	$0	$
Trash Bill	$20	$20	$
Christmas	$0	$0	$
Vacation	$0	$50	$
Tuition	$300	$300	$400*
Holiday Leave	$0	$0	$
Total	$367	$605	$

*This means that I went over my sinking funds allowance last month. I just need to replace it this month to get caught back up.

*My husband is in the Navy and we have to replace 1+ of his uniforms or PT uniforms each year. It’s nice to have the money saved in advance!

*I pay my college tuition a few days early, but it is due on the first of each month so I just include it in the current months sinking fund.

I started with a $0 balance in most of my categories this month because I’m expanding my sinking funds account to hold more categories. So if you’re wondering why a lot of them began with $0, that’s why!

If you found this post useful, please share!