Budget Better With Sinking Funds

Smarter and Harder

If you often have trouble saving for large expenses or covering unpredictable budget categories, you may find sinking funds a useful way to smooth things over. 

A sinking fund is a special savings pool, usually one that goes into its own checking or savings account to separate it from regular savings.

A person can have multiple sinking funds, and each one should be set aside for a specific expense or budget category.

Typically, you use a sinking fund by regularly contributing to it in small amounts, and then using the money when the expense it is for comes up.

Common purposes for a sinking fund include travel, buying a house, holiday spending, or a new baby fund.

These events can often be expensive and unpredictable, so saving for them ahead of time can ensure you're prepared when the time comes.

It's important to note that this is different from an emergency fund. Sinking funds are for specific, expected costs, whereas emergency funds prepare you for the unexpected.

Sinking funds are a great way to slowly and intentionally prepare for big expenses without having to disrupt your budget or use emergency money when they come.

To start using your own, simply point out a big expense coming up in the near future, estimate what it will cost, and start contributing savings toward that number each month.

Then when that moment comes, you're ready, and so is your money. No more need to lose sleep (or income) over it!

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