How to Effectively Use Sinking Funds (2024)

Sinking funds are freaking amazing! They are mini saving accounts set up for the expenses you know you will have throughout the year but don’t come up every single month. Sinking funds allow you to save little bits throughout the year, so when that quarterly, bi-annual or annual bill comes up, you totally have it covered.

Sounds awesome, right?! That’s because they are!!

Unlike an emergency fund that is for the sudden unexpected expense; sinking funds are for all of those expected expenses you may not be able to afford when they come.

These are things like Christmas, car repairs, going to the dentist, taking your pet to the veterinarian, back to school shopping, etc. Sinking funds are for all of those things you know are going to happen.

They allow you to have the money for those irregular expenses when they come up instead of you acting like you had no idea Christmas was coming and now you have to use your emergency fund to get everyone gifts. You know what I’m talking about.

There are tons of categories of sinking funds and every family is going to employ the ones that fit them.

I have 13 sinking funds for my family you can check out here.

If you are just hearing about sinking funds for the first time right now, you should read this to learn why they are pretty much the best thing ever and will keep your budget from failing.

So, now that you are convinced you need sinking funds, and you should be using them. Let’s talk about how you even go about making them part of your budget.

List Expenses

First, you are going to want to make a list of all of your irregular expenses that happen every year, but not on a monthly basis. The most efficient way to do this is to look at your transactions from the past year. If you have already been budgeting, this shouldn’t be too difficult to do.

Make a pot of coffee or pour a glass of wine, put on some good tunes and go through your last year of expenses. Just rip off the band-aid. On a piece of paper, write down the expenses you see that you know you will have again in the coming year.

In addition to the expense, make sure you write down the month it happened and how much it cost. You will need those pieces of information to put all of this to work for you.

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Expected Date

Second, for every sinking fund, you will need to know the expected date for when the expense will occur again. Here are some examples from my own life:

• Car registration $75 per car X 2 due every August
• Water Bill $90 due quarterly beginning in January
• Oil changes are needed in June and December based on our current driving
• Dentist appointments $80 each are in April and October
• Life insurance premiums are due in March (annually)

I could go on and on. After three years of budgeting, we really don’t have any more unexpected expenses. Instead, we have sinking funds in place for everything including new dog beds every 6 months and new tennis shoes for my husband every 6 months.

Once you start paying attention to when your “unexpected” expenses are coming up, you can start actually planning for them. Then they just become things you put in your budget on a given month and, “Surprise!” you already have the cash for it.

Time until Expense

Third, determine how many months you have until the expense is going to happen. If you are starting this in January and you know you have Christmas coming up in December, then you will have 12 months to save.

Or, if you are starting this in April and you have an expense happening in October, then you would have 6 months to save.

Look at when all of your expenses occur, know your start date for beginning to use sinking funds and determine how many months you have to save the money for each of your expenses.

Budget Accordingly

Finally, decide how much you are going to put into each fund per month. Most people choose to contribute to all sinking funds every month. There are some people with enough income who can just get their sinking funds fully funded within a few months. For those, they can prioritize and fill whole sinking funds at a time.

Otherwise, you would take the cost divided by the months until it’s due and put that much into savings every month. Then, by the time the bill comes due, there is enough money to cover it. You can be relaxed and everything gets paid on time!

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Once you have your worksheet filled out, the next step is to add those things to your budget. If you don’t have a budget set up yet, start here.

If you do have your budget set up, you may just need to add some additional categories/items to it. If your new expenses are making your budget a little tighter, check out these 15 ways to save money!

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Of courseyou could! It’s crazy the amount of money people can actually save.

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