What is a Sinking Fund?

Happy Friday! I hope everyone was able to enjoy July 4th celebrations! We were hoping to watch the beautiful fireworks show very close to where I live but they were cancelled. PBS and Channel 13 to the rescue!

As we continue learning new ways to save money I want to introduce the sinking fund or some call it a bucket fund. A sinking fund is a way for corporations to put aside money at specific intervals in order to pay a bond or a debt that will be due at a later date. As individuals we can use the same strategy to achieve our goals or pay expenses that aren’t due on a monthly basis. By planning and putting away a little bit each paycheck, big expenses can be less of a burden.

Think of them as individual envelopes with names such as vacation, insurance, holidays, car, etc. By creating separate accounts for common, but irregular expenses, you control the chaos some of these expenses cause. The best part!! You won’t reach for a credit card. Imagine…..going on vacation, paying for everything you want to do and not using credit cards. No bills following you home the next 6 months.

To show you the process let’s say you pay your car insurance every six months, and that bill is $600 each time. Based on when the bill is due, you can figure out how long you have to save the full amount. For our example, let’s say you have six months.

To calculate how much to save, take the total due and divide it by the number of months you have. In our example it’s $600 divided by 6 which equals $100 per month. You would put your “sinking fund” requirement right on your monthly budget for $100. Or if you’re paid twice a month, you can even break it down further to $50 per paycheck.

I suggest moving the money for your sinking fund out of your checking account and into a savings account. Out of sight and out of mind! You can establish as many sinking funds / savings accounts you want to accomplish this for several items. This can prevent you from spending the money on other things. Then, when the bill arrives, simply transfer the money back into your checking account and pay the bill.

The next month, start adding back to the sinking fund for the next time your insurance is due. This works for holiday gifts, car repairs, childrens braces, and anything you want to. Start with 1 or 2 savings accounts to get used to the idea. I have a total of 3 so far – insurance, vacation and house updates.

A list of ideas for you’re sinking funds are:

Gifts: Birthdays, Anniversaries, Teacher Gifts, Parties, Showers, Holidays.
Car: Repairs, Maintenance (oil change, tires, brakes, etc), registration / inspection, Replacement (if
expense is coming up within 2 years)
Home: Repairs, Maintenance (seasonal utilities), Furniture, Appliance Replacement
Medical: Deductible, Co-Pays, Dental, Eye Glasses, Medications, Medical Equipment
Fees: Homeowners Association, Tax Prep, any other large fee expenseyou get every year
Vacations: save up money based on when you want to go on the vacation Clothing: Back to School, Uniforms, Work Books or Clothes

Want to know more about getting your monthly expenses under control? Click here for an appointment for the “I’ve Had it” session. We’ll discuss your goals and talk spending plans tailored for you.


Published by Financial Coach - Roxanne Langley

I understand how it feels to wonder where your money goes each month. Or feel frustrated by the idea of planning for a stable financial future when today is still so uncertain. It doesn’t have to be that way, and I can show you how by helping you build a budget, get out of debt, and begin to save for the future of your dreams. As a trained Money Mindset Coach on your side, "You’re not alone in the journey!"

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