Okay, so you know which of your expenses to set up a savings for, but now you’re asking, “how do I use my sinking funds?” The answer is super-simple: you put the money in your savings account and keep track on a spreadsheet of how much money is in each fund. Pretty much any expense you can think of can be a sinking fund. Heck, I’m even saving up for a new suit for work because it hurts our monthly budget too much to invest in a nice suit with only one month’s income. You could also begin saving for replacement computers, major home repairs (like the roof or new carpeting), and new furniture. If you own your own appliances, replacement appliances are prime targets for a sinking fund. Maria and I are renting right now, so we don’t have any home appliances like a washer, dryer, refrigerator or dishwasher. There are a whole lot of other sinking funds you could have in your own budget. Here’s a list of the sinking funds Maria and I have right now: Basically, if we have a predictable, recurring expense, we have a savings fund for it. That way, the cost is spread out over the entire year rather than hitting your budget really hard in one month.Īlong with “What are sinking funds?”, another question we get a lot is “What sinking funds do you have?” I’m not going to lie: Maria and I have quite a few items that we are saving for and we are always adding more.
Or, with a little planning, you could save $8.25 per month for 12 months in a sinking fund for your Amazon Prime. You could just take that $99 out of your budget in the month that your Amazon Prime renews, but it’s kind of a big hit and something else in your budget will have to be significantly reduced. I’m sure lots of you are Amazon Prime members. Let’s take one easy example: an Amazon Prime membership. The real advantage of sinking funds is that it spreads out your big expenses over a lot more time. Things like that are perfect for sinking funds. Or annual membership dues that you pay only once a year. A good example is our water and sewer bill, which comes once every three months. Sinking funds are one of Dave Ramsey’s (and thus Maria and my) favorite ways to plan your budget for the long term. They are great for expenses that are predictable, but don’t come up every month. Which is why I am so happy to sing the praises of these savings funds to you. I felt like I had taken control of my finances rather than my bills dictating what I did with my money. At the end of that first month, when I actually started putting money into my savings account for designated purposes, the feeling of empowerment was overwhelming. I still remember the first monthly budget I did back in summer of 2014. Of all the things I learned in Financial Peace University, I especially love sinking funds. (We will show you how in this post, too.)
Each of those little subcategories is a sinking fund and we use a spreadsheet to keep track of them on our computer. Within that savings account, we have money set aside in subcategories for all sorts of purposes: saving for a new car, saving for a down payment on a house, saving for our Costco membership renewal… the list goes on and on. Ever saved up to buy something? Then you’ve created a sinking fund. Maria and I share one personal checking account and one personal savings account. Let’s start with the basics: what the heck is a sinking fund? The phrase “sinking fund” is a fancy economics term for saving up for an expense. Well, get out your pen and paper, because this post is all about what these funds are, which funds are included in our monthly budget and how we use them. In sharing our financial stories and advice, Maria and I get one question over and over again: “What are sinking funds?” We’ve talked about saving money before in a general way, but we haven’t really discussed many of the specifics about sinking funds.