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Everything You Need To Know About Sinking Funds

 

When I decided to start my debt free journey the first thing I really jumped in and researched was Sinking Funds! Sinking Funds were really intriguing to me but also VERY confusing. I did a ton of researched and realized how much they truly would help me in my debt free journey and could possibly (and did) save my butt many times!!

The best way for me to describe a sinking fund is a fund that you create to save for a specific goal to prevent you from going into debt. For example, Christmas or car repairs. If you are sitting at the dining room table at Thanksgiving and suddenly realize that Christmas is next month, you haven’t started shopping and you have no money saved you may be tempted to put your gifts on credit cards. BUT if you had a Christmas sinking fund and was putting away money all year round not only could you be buys gifts that are on sale all year round but you have all the money you have put aside ready for you to shop!

Two Types Of Sinking Funds

There are two types of sinking funds; one that has an end goal and an open ended goal. Let’s dig into them both.

Sinking Funds with an end goal

As mentioned above, Christmas. Christmas is the perfect example of a sinking fund with an end goal. Last year you put all of your gifts on credit and you made a new year’s resolution not only to start paying off your debt but also to STOP CREATING NEW DEBT. January 1st is here and you are so excited to create your budget and start your sinking funds. Next year you would like to save $600. So divide $600 by 12 (12 months until Christmas) which equals $50. Each month set aside $50 for Christmas.

Sinking Funds with an open ended goal

An example of a sinking fund without an end goal is car repairs. You know car repairs are inevitable, they could be a simple $30 repair of just new windshield wipers or it could be a $900 repair of a timing belt. The $30 repair probably wouldn’t set you back too far but the timing belt probably would. I put $50 a month into a Car Repair Sinking fund to help offset those costs.

When the time comes I have the money. Even if the repair bill is $900 and I only have $550 in my sinking fund, it still makes the whole situation a whole lot less stressful when you only have to figure $350 verses the original $900!

For so long car repairs and emergencies are not only physical emergencies by not making it to work on time or a minor car accident but they have always been financial emergencies as well. Having a car sinking fund eliminate one of those emergencies completely!

Where to store your sinking funds:

The next thing to figure out is where you want to keep your sinking funds. I personally keep all of my sinking funds in one savings account and then keeping track of them in my excel budget. There are also savings accounts like CIT Bank that let you create several different savings accounts where you can keep each sinking fund separate.

CIT Bank Money Market Account

Lastly, you could keep your sinking funds in cash envelopes. I would only recommend this if the sinking fund is going to total under $200 and want the cash at easy access.

*Creating a zero-based budget is a game changer to hit your financial goals, it truly makes you in charge of your money rather than your money in charge of you! Here is the excel template that I have created and used when I was paying off my debt, cash flowing my wedding and still use today!

Ways I save money:

Here at Freedom In A Budget, I am all about saving money! Here are some of the EASY ways that I save money:

• Billshark negotiates lower prices on your monthly bills to save you time, money and hassle.

• Fetch Rewards is a free grocery savings app that rewards you just for snapping pictures of your receipts. That’s it. Really. Free gift cards on groceries on thousands of products every day, no matter where you get your groceries. 

Just scan your receipts and get gift cards from retailers like Amazon, Target, Ulta, Applebees. Use code QHKBH to earn 2,000 points ($2)!

• Credit Sesame offers Credit Score and Monitoring, Savings Recommendations and Identity Theft Protection. ALL FOR FREE.

• CIT Bank offers high interest savings accounts and CDs to provide a safe, secure way to earn money grow your savings.

• Gabi is a full-service, online advisor who compares all your insurance options to find you the right policy, all in under two minutes.

• M1 Finance is an easy to use brokerage platform that allows you to invest in Fractional Shares and auto reinvest!

• Webull Get 2 Free Stocks on WeBull when you deposit $100 (Valued up to $1400).

• Glasses USA Save money by buying your prescription glasses, contacts or prescription sunglasses online. They have an easy to use virtual mirror so you can see what they look like on and carry tons of name brands up to 65% off your first pair.

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