This post contains affiliate links, which means we may receive a commission if you click a link and purchase something that we have recommended at no extra cost to you. Recommended products and services are based on my positive experience with them. Please check out our full affiliate disclosure
This blog post is all about how to save money with sinking funds.
Have you ever wondered how to not use your credit card for every purchase such as Christmas and Birthdays?
What if I told you that you can save easily in advance and always have enough money at hand for any occasion that comes up during the year.
This post tells you all about how to save money with sinking funds. After you have learned how to save money with sinking funds and how to create a sinking fund, you will see that saving for special occasions has never been more fun and rewarding.
If you are part of the debt-free community and really aspire to become debt free, then finding out how to save money with sinking funds will be a great way for you to manage and save money during your journey.
With sinking funds you can plan and save for items or known events that will come up, such as Christmas, Birthdays, Vacations, etc.
A sinking fund can help you buy the items you want, take the vacations you dream of, be prepared for when Christmas or Birthdays come around, without having to ever rely on your credit cards. It’s the kind of funds that allow you to spend without regrets, really!
Quick Navigation
What Is A Sinking Fund
A sinking fund is a way to set money aside each pay period for items you will purchase in future. This might be for special occasions but can also be for health related expenses. There are no rules when it comes to putting money aside for your sinking funds. As long as you allocate a certain percentage or dollar amount to achieve your target dollar amount for the specific event you want to save.
How Does A Sinking Fund Work
First, a category gets ascribed to a sinking fund. This could be literally for any category you want to save money towards. Then each month, you allocate a specific amount from your budget towards the individual sinking funds. This way you can start allocating money towards the category Christmas at the beginning of the year. Once Christmas comes around, you have the money to buy presents in cash.
How Many Sinking Funds Can You Have
The amount of sinking funds you can have are endless. You can literally have sinking funds for all kinds of occasions and events. The main reason why you would have many sinking funds is that you can properly allocate enough money for all the different events and occasions that pop up in any given year.You can have physical sinking funds or digital (with your bank!).
A Sinking Fund Example
Let’s say you wanted to create a sinking fund for a Spring Break Getaway. You will need to know exactly how much the trip will cost you.
This will include airfare/how to get to your destination, if by car, gas money, etc. You will need to know how much money you need to spend on accommodation and food. Finally, any additional money that you may need for day time excursions or events need to be added.
With a sinking fund for a Spring Break Getaway, you will plan ahead and you know what this vacation will cost you all-in.
If you knew you had to pay $3,000.00, then you’d have to allocate $300.00 towards this sinking fund, if you had 10 months until the trip. If you had 6 months to save for this trip, you’d have to save $500.00 a month. You get the picture.
How To Create A Sinking Fund
First, you need to determine whether you want to have your sinking funds kept in cash or on your bank account. Of course this is up to you and your preference. Most banks that operate online, give you the option of having a few accounts for your sinking funds categories. If you prefer cash, then create your own envelopes to keep the cash. A very valuable method to create sinking funds is by means of the cash envelope system.
The Cash Envelope System – Create Your Sinking Funds
If you are an all cash spender, then you’d use cash for your sinking funds as well. You can store them easily with cash envelopes. You can even make them yourself.
Each month you will allocate a sum of money from your monthly budget towards any given sinking fund. This will become part of your budget. After all necessities have been taken off, you will make a list of the sinking funds you want to create.
Because sinking funds are a way to prepare yourself for upcoming expenses, you plan ahead and won’t have to use your credit cards. You know these expenses will eventually pop up. Prepare by starting early in the year, so that by Christmas time you have all the cash you need to purchase presents, without having to dig into credit.
This blog post is all about how to save money with sinking funds.
Image Credit:
Photo by Kelly Sikkema on Unsplash
Final Note
It is important to know how to save money with sinking funds, especially if you want to stop reducing temptation of using your credit cards to make purchases for special occasions. Start saving money with sinking funds today and never use credit again.
More Posts That You Might Like:
- 10 side hustles in 2019 to make money in addition to your day job
- How to start a $500 dollar emergency fund