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March 15, 2019 · Leave a Comment

What Are Sinking Funds

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Budget· Budget Tips· Debt Free· Debt Free Tips· Saving· Ways We Save

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What if I told you that there was a budget strategy that is absolutely vital to helping you stay on budget, that can help reduce the stress in your budgets, and that makes sure you can cover unexpected expenses without dipping into your emergency fund?  If it sounds impossible, it’s not.  It’s simply a sinking fund!

Why Your Budget Needs Sinking Funds

What Are Sinking Funds

I get it.  The term sinking fund sounds complex but put simply, it’s money that you set aside for a purpose at a later date.

For example, if you know that you will have to replace the tires on your car before winter comes, and you don’t want to pay for them out of the budget of one month, then you’d start setting aside money specifically for the tires.  You’ve just created a sinking fund!  Saving $50 per month over 10 months for replacement tires is a lot more feasible than a $500 expense all at once.

How Important Are Sinking Funds

I would argue that sinking funds are absolutely vital to your budget!  As a matter of fact, I’m going to say they’re just as important as your emergency fund!

A few years ago, I had minimal sinking funds.  My sinking funds consisted of a lump sum savings account {in other words, I had them all in the same savings account} with a $400 medical deductible, a small amount for clothing, $1,200 for vision expenses and a few hundred for non-monthly bills.

While I felt like we were able to pay down a lot in debt over those years, I also was constantly stressed because I was taking some expenses from our regular monthly budget that didn’t really need to be taken from there.  I was constantly worried about not wanting to go over our budget.

After I started creating more sinking funds, our budget was less stressed.  While the debt payments may not have been as large as I would have like them to be {part of this was because our medical insurance contributions and out of pocket costs have changed as well}, but any unexpected costs were able to be covered within our expanded sinking funds.  That in and of itself has helped make our budget experience a lot more joyful.

How Do I Determine My Sinking Funds?

This will vary for every individual budget.  I know this isn’t really the answer that you’re looking for, but it’s the best answer I’ve got!

Start by looking through old bank statements to determine which transactions you could have prepared for.  As you’re going through them, be sure to note when the transaction took place, what the expense was for, and how much it cost.

Some common sinking funds can include:

  • Car Maintenance & Repairs – oil changes, inspection, new tires, etc.
  • Medical Expenses – copays, prescriptions, deductible costs, etc.
  • Dental & Vision – if you don’t have insurance, you’ll want to know an average cost per year for cleanings and exams, and save up for them throughout the year.
  • Annual Expenses – taxes, HOA dues, insurance, etc
  • Home Expenses – any minor upgrades or maintenance, to bigger expenses like appliance replacements
  • Gifts – holidays, birthdays, weddings, graduation, etc
  • Vacations
  • School Expenses – back to school expenses, fundraisers, field trips, etc

That’s just a start to some of the sinking funds you could have in your budget.  But inevitably there are some that do slip through the cracks.  To minimize this, check out my post on how to determine your budget categories, and see if any of those categories could qualify as sinking funds for your budget.

How Much Do I Put In My Sinking Funds?

Just like with what sinking funds you should have, this will depend on what you are saving for.  It’s always a good idea to have a ballpark estimate of what needs to be saved.  And it’s even better if you overestimate some of the expenses.

For example, we get our septic pumped every two years.  For that sinking fund, I know it’s going to cost between $250 and $300, so I err on the side of caution and save up $300.  When the time comes, and I’ve only spent $250 of my sinking fund, I either send the remainder to debt or add it to a sinking fund that could use the extra help.

When Do I Start My Sinking Funds?

Personally, the sooner you can start them the better!  I find that if I start my sinking funds too soon, I may borrow from it for another category or fund, and I don’t want to do that.

But there are no steadfast rules on exactly when you need to start a sinking fund.  Start them whenever you feel comfortable!

For a sinking fund for our septic maintenance, I start it about 6 months before I plan on having our septic pumped {around October or November}.

For our back-to-school sinking fund, I start it in March.  It gives me enough time to save up some decent money before school starts, as well as catching some clearance clothing deals and early back to school deals.

For our medical sinking fund, I start them in January every year – simply because it’s when our deductible resets.

For a sinking fund we have for Hubs’ company truck, I start it in November – that’s when they assess his personal mileage and take that usage from his paycheck.

How Do I Keep Track Of My Sinking Funds?

You can keep track of it with a simple bar graph, a tally on a whiteboard… whatever works for you!

I personally like to keep track of my sinking funds in my budget planner.

When we were paid weekly, I used my 52 week savings tracker to show me how I am progressing towards my savings goal.  Now that we’re paid monthly, I use the sinking fund tracker in my budget planner.

View this post on Instagram

 

There’s something oddly satisfying about coloring in small boxes as we stash money aside in our sinking funds. ?⁣ .⁣ Whether you keep sinking funds in cash is totally up to you. Only one of these funds is in cash; the one for getting our septic tank pumped this summer. The rest are in savings accounts.⁣ .⁣ Unsure where to start on sinking funds? I have a video on my YouTube channel where I break down the calculations for our two new sinking funds. Check it out here: https://youtu.be/327KZYNrJko⁣ .⁣ Link to my channel is also in my profile.⁣ .⁣ .⁣ .

A post shared by @ makingcentsmatter on Mar 18, 2020 at 8:31am PDT

For more on how I use it, check out this video where I walk you through how I calculate our sinking funds on my YouTube channel.

Do you use sinking funds?  What are that most important sinking funds you include in your budget?

How To Use Sinking Funds In Your Budget

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makingcentsmatter

makingcentsmatter
Only you can determine what your financial goals a Only you can determine what your financial goals are. If that means you're adding money to your savings account, or contributing to your retirement, while you are paying off debt, then so be it!⁠
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Do what looks right for you and your personal finances.⁠
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The trick to meal planning is to make it predictab The trick to meal planning is to make it predictable. But predictable doesn't mean the same thing week to week. You could have a chicken meal, a soup meal, a pasta meal, a leftovers meal, a family favorite meal, and so on.⁠
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I can only hear about my extended warranty I never I can only hear about my extended warranty I never purchased so many times. 😣⁠
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March Debt Paid numbers are in!⁠ .⁠ House: $51 March Debt Paid numbers are in!⁠
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House: $511.13⁠
Citi: $0 – this has a residual $3 in interest charges since payoff, due in April⁠
D NelNet: $100⁠
K NelNet: $100⁠
K Chase: $600⁠
Explorer: $336.27⁠
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Total Paid in 2021: $8,258.84⁠
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Extra Payment: There isn’t one this month since we were $25 away from zeroing out the budget for our February 15th monthly paycheck. That $25, and monies left from our January 15th paycheck, covered our OOP costs for Hubs’ filling. We also have some savings goals coming up that need to be met, making our debt payments a little lower for the time begin.⁠
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The battle for who can charge what tonight is abou The battle for who can charge what tonight is about to begin. 😬⁠
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My kids run off with my charger, plug it into one outlet 5 feet from where they found it like that particular outlet is the only one in this house, and then proceed to fight over who can charge their device first at night.⁠
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Then they get grumpy when it's their turn and it's not the proper input cable. #itwasmychargerfirst #dontlikeitgofindyourown⁠
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A needs his wisdom teeth taken out. I've talked a A needs his wisdom teeth taken out. I've talked a bit in our February Budget Check-In about how much of this I think we'll owe, and you can check that out on my YouTube channel if you're interested, but I wanted to say here...⁠
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To the mother with little kids struggling to get your finances in order, it will get better. I wish I could have heard those words years ago.⁠
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Nearly 10 years ago we were facing a $1,400 out-of-pocket portion for A's Phase 1 orthodontic work (I looked it up after I uploaded the video... we had a $1,400 portion).⁠
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It was a lot of money for us at the time. Our kids were 6, 2, and 3 months old. I don't think we even had $500 in savings, and I just left a part-time teaching job because it wasn't paying the part-time daycare bill, so paying our portion in full was just a dream I didn't think was achievable.⁠
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I was even stressing about the monthly $100 payments. We were so strapped. It was our breaking moment to start cutting costs and budgeting more effectively. We've learned a lot in that time period.⁠
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What we've learned is that it does no good to stress about it all the time. Life happens. All you can do is try to plan ahead, and if it's something that's unplanned, readjust. It won't always be easy, especially at first, but it will be worth it.⁠
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Nearly 10 years later, we are still paying off our debts. Student loans suck. But I see this bill as a reminder of how far we have come. Seeing a bill like this doesn't stress me out like it used to, and I know we can easily create a plan that can get it done and out of the way.⁠
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Will it delay our debt-free date more? Yes. But it's not worth stressing over. Life happens, readjust, and continue on down the path. It's called a journey for a reason.⁠
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It's almost payday! Here's how our variable budget It's almost payday! Here's how our variable budgeting categories are working out for the pay month.⁠
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Food is looking good this far into our paycheck, probably because miscellaneous - which includes eating out - took a hit with unexpected purchases. Pet is low for this time of the month, and Household is spot on.⁠
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Fuel looks like it'll be lower than last month (yay for weeks of snow days & delayed school starts), and Therapy had one more appointment than initially planned.⁠
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Garden, Dental, Medical & Propane are not included in these estimates so far because those expenses are coming from sinking funds. Once we're done with the month and review the budget, I'll move over the total amount spent from those sinking funds.⁠
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How's your paycheck budget coming along?⁠
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Automating your finances makes saving money and bu Automating your finances makes saving money and budgeting more convenient, and therefore easier on you. Out of sight, out of mind, right?⁠
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What's one thing you can automate this week to make your finances easier?⁠
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Me? I'm going to set up our sinking fund transfers to automate every payday (the 15th of every month). Our bank set up a feature on their app where we can schedule savings transfers now, and I'm going to take advantage of it!⁠
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Oh my word... our miscellaneous category has gone Oh my word... our miscellaneous category has gone a smidgen overboard this month!⁠
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I foresee a goal for March's paycheck to at out less than twice. That's where this category went awry. $99.16 of it went to eating out. 😑 Some of it was avoidable, but not all of it. Having to drive to multiple appointments in one day during snow squalls and rearranging our whole day was one of those unavoidable instances.⁠
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Tracking our expenses - much like a budget review - is vital to sticking to your budget!⁠
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