Many people get that sinking feeling when they know that they have to pay they knew was inevitable but they may not have the money for – whether it for car tires, home repairs or medical expenses.
For most, they failed to plan in advance, and as result, they are losing sleep and are stressed about having to cover the expense(s). If you don’t have an emergency fund, you may be familiar with that feeling – it’s great to have at least $1,000 on hand for real-life unknown events that pop up when you lest expect them to – after all, life can throw some pretty wild surprises.
There is also a way to cover those surprises that are planned – from semi-annual car insurance premiums, to upcoming known dental expenses, summer vacation expenses, family trips – even kids planned field trips for school.
It’s a Sinking Fund
A sinking fund is fund where money is set side in a fund with the intended purpose of pay for something specific – perhaps that is your semi-annual car insurance premium, or, an upcoming family trip. It could also be for Christmas – gifts and decor, or even summer break with the kids.
An emergency fund is for the unknown, while a sinking fund is for known purchases – a specific purchase or purchase when you know you are going to need the money at a specific point in time.
Even better, you can start stashing away money now for a sinking fund – whether it be regular contributions or a little here and there as you are able. Here are 5 areas that make wonderful sinking funds:
#1: A Home Fund
When you finally make your way into a home, you’ll not only have a place to call your own, but you will also have frequent repairs. The same goes for an apartment – whether it be a patio door, pool fence, water heater, or even new paint or faucet, you’ll have to dig into your pocket for money to fix those repairs.
By tucking away money in your sinking fund, you’ll have an avenue to be able to help you pay for those constant repairs – because they will be frequent, without touching your emergency fund.
#2: A Gift Fund
If you plan on gifting to people throughout the year for graduations, Christmas, neighbors, or even for a recent wedding, you’ll want to have money set aside so you can purchase those items without having to pull out plastic.
That also includes baby showers and birthday parties your kids might get invited to – this allows you to preplan, without the stress of digging into your regular budget or foregoing the event altogether.
#3: A Children’s Fund
This is one of the best sinking funds you can have, especially if you have children. From field trips to school pictures, and even summer break, it’s a wonderful idea to contribute to this fund regularly. This is one of my favorite funds – we use ours to prepare for summer break every year by tucking away a set amount per week that we can use in the summer to take the kids to movies, for ice cream or to buy a waterslide that they can use to keep busy in the backyard.
It really takes the pressure off knowing that they will be busy all summer without having to always depend on mom to open her wallet.
It’s an incredible feeling when you can reach in your sinking fund to take care of something you knew was approaching instead of dipping into your regular budget or your emergency fund.
#4: A Travel Fund
Everyone loves to travel – right? From mini day-trips to one long trip each year, a travel fund is the perfect way to plan for time away with the family. While some people may not want to use their travel sinking fund for a family trip that everyone loves each year, it’s the perfect way to plan ahead for family fun.
If your kids love to visit LEGOLAND every October, then take the opportunity to plan in advance by tucking away a set amount each month or extra money as you are able so you can take that trip and enjoy the time together.
#5: A Vehicle Fund
Every family needs a vehicle sinking fund – after all, most, if not all of us, pay license and registration, cleaning, repairs, and semi-annual insurance premiums. Every few years we may occasionally pay for tires once the old ones wear.
Thankfully you can plan ahead for these expenses by tucking money away so you don’t have to rely on a small installment loan, dipping into your regular budget or putting on your credit card. We know that getting new tires in inevitable every few years, so plan ahead – why not tuck $25 or $30 a month into a fund that you can use to help you later on?
It’s just the smart thing to do.
Of course, sinking funds can also include one for pets, computers, a wish-list, Christmas, medical expenses and more, but only you know what’s best for your family at any given point in time.
A sinking fund will protect your regular budget and prevent you from relying on plastic when you need to handle the things that life throws your way. If you find yourself willing to commit a small amount on a regular basis, then set up an automatic ACH to funnel money into separate specific accounts each month.
Capital One is a wonderful online bank that can help you establish those sinking funds easily and set up transfers so everything is automatic. Even better, there is no minimum required to start, and no fees.
Next time you find yourself with an extra $10 or $20, think twice about throwing it down on stuff you may not need – and give it a better purpose by tossing into one of your sinking funds. Not only is it easy, it’s rewarding.