5 Must-Have Sinking Funds

A sinking fund won’t actually sink your budget. It’s a must for any family. Here are 5 important sinking funds that every family needs to have.

Many people get that sinking feeling when they know that they have to pay for expenses you knew were approaching.  That could be anything from tires to a new air conditioner, to car registration, or even sports fees.

For most, they failed to plan in advance, and as  result, they are losing sleep and are stressed about having to cover the expense(s).   If you don’t have an emergency fund, you may be familiar with that feeling.   It’s great to have at least $1,000 on hand for real-life unknown events that pop up when you lest expect them to.   After  all, life can throw some pretty wild surprises.

There is also a way to cover those surprises that are planned. Whether it be semi-annual car insurance premiums, to upcoming known dental expenses, summer vacation expenses, or family trips. A sinking fund (or, several sinking funds) can help maximize your budget and allow you to prepare for those expenses ahead of time.  

5 Important Sinking Funds

A sinking fund is a fund where money is set aside in a fund with the intended purpose of paying for something specific – perhaps that is your semi-annual car insurance premium, or, an upcoming family trip. It could also be for Christmas – gifts and decor, or even summer break with the kids.

An emergency fund is for the unknown, while a sinking fund is for known purchases.   A sinking fund is for a specific purchase or purchase when you know you are going to need the money at a certain point in time. 

Even better, you can start stashing away money now for a sinking fund – whether it be regular contributions or a little here and there as you are able. Here are 5 areas that make wonderful sinking funds:

#1: A Home Fund

When you finally make your way into a home, you’ll not only have a place to call your own, but you will also have frequent repairs. The same goes for an apartment.   If you have to repair a patio door, pool fence, water heater, or even new paint or faucet, you’ll have to dig into your pocket for money to fix those repairs.

By tucking away money in your sinking fund, you’ll have options.  Repairs can be frequent – and by having that money set aside, you won’t have to touch your emergency fund.

#2:  A Gift Fund

If you plan on gifting to people throughout the year, plan ahead.  That sinking gift fund can help you set money set aside so you can purchase those items without having to pull out plastic.

That also includes baby showers and birthday parties your kids might get invited to.  This allows you to preplan, without the stress of digging into your regular budget or foregoing the event altogether.

#3: A Children’s Fund

This is one of the best sinking funds you can have, especially if you have children. From field trips to school pictures, and even summer break, it’s a wonderful idea to contribute to this fund regularly.  This is one of my favorite funds. We use ours to prepare for summer break every year by tucking away a set amount per week.    We can use that fund in the summer to take the kids to movies, or for ice cream.  In the past, we have also used it to pick up a waterslide for our yard.

It really takes the pressure off us as parents, knowing that we have money set aside.

It’s an incredible feeling when you can reach in your sinking fund to take care of something you knew was approaching.   

#4: A Travel Fund

Everyone loves to travel – right? From mini day-trips to one long trip each year, a travel fund is the perfect way to plan for time away with the family.  While some people may not want to use their travel sinking fund for a family trip, you can use it to plan ahead too.

If your kids love to visit LEGOLAND every October, then take the opportunity to plan in advance.  Tuck away a set amount each month or extra money as you are able so you can take that trip and enjoy the time together.

#5: A Vehicle Fund

Every family needs a vehicle sinking fund.  After all, most, if not all of us, pay license and registration, cleaning, repairs, and semi-annual insurance premiums. Every few years we may occasionally pay for tires once the old ones wear.

Thankfully you can plan ahead for these expenses by tucking money away.  By tucking money away ahead of time, you won’t have to rely on a small installment loan or your credit card.. We know that getting new tires in inevitable every few years, so plan ahead.   Why not tuck $25 or $30 a month into a fund that you can use to help you later on?

It’s just the smart thing to do.

Of course, sinking funds can also include one for pets, computers, a wish-list, Christmas, medical expenses and more.  Only you know what’s best for your family at any given point in time.

A sinking fund will protect your regular budget and prevent you from relying on plastic. If you find yourself willing to commit a small amount on a regular basis, then set up an automatic ACH.  That ACH can help to funnel money into separate specific accounts each month.

Capital One is a wonderful online bank that can help you establish those sinking funds easily and set up transfers so everything is automatic.  Even better, there is no minimum required to start, and no fees.

Next time you find yourself with extra money, think twice about throwing it down on stuff you may not need.  Give it a better purpose by tossing into one of your sinking funds.  Not only is it easy, it’s rewarding.