This post may contains affiliate links, which means I receive a small commission at no cost to you. Please read the full disclosure here.Sinking funds are money set aside for a specific purpose.
By using a sinking fund, the avoidance of having a money emergency goes away.
Typically, these funds are expenses that randomly pop up or expenses that are paid on a quarterly or yearly basis.
So, what are sinking fund examples?
Need new tires? Taken care of with car service fund.
Want to take a vacation? Taken care of with vacation fund.
Need to go to the vet? Taken care of with pet needs fund.
Then, you can leave your emergency fund – just for an unexpected, out-of-the-blue, knock-over-expense.
What is a Sinking Fund?
The definition of a sinking fund is money set aside for a specific purpose.
In other words, paying yourself first to make a purchase rather than using a form of debt.
The most common type of sinking fund is an emergency fund. Money set aside just for emergencies.
There can be many types of sinking fund categories.
Another sinking fund example would be a vacation fund. For obvious reasons, those type of funds are just more fun to save for and plan vacations.
On the flip side, the car maintenance fund is a different sinking fund example. And well, just dreaded to save for and to use it.
The type of sinking fund categories all depend on your stage of life, your path to wealth, and what you desire in life.
Before you keep reading understand how sinking funds and the Money Bliss Steps to Financial Freedom will change your financial future forever.
Importance of Sinking Funds
By utilizing sinking funds, the living paycheck to paycheck cycle is broken. It is a way to ease stress. You are able to say ahead on bills and unexpected needs.
Thus, being easier to sleep at night.
The key to sinking funds is not to cross money between accounts. That means the home repair sinking fund can’t be used to pay the kid’s travel competitive soccer registration.
Don’t be tempted.
If not, there is no point to a sinking fund.
By utilizing one of the sinking fund examples, then the emergency expense does not pop up here and there.
It is easy to set up sinking funds when you learn how to make a budget.
Each month the same amount of money is allocated to the sinking funds. Take out the roller coaster effect of making ends meet.
Resource to help you succeed: Best Cash Envelopes – Find One to Work for You
How Many Sinking Funds to Use?
That is completely up to you. Some people want a few sinking funds. Others want over 50 sinking funds. Decide what is best for you.
What can you manage? What areas do you need to sock extra money away?
With the Cents + Vision Planner, it will help you eliminate the need for a ton of separate bank accounts.
At the minimal amount, I recommend at least five sinking funds.
When to Start Sinking Funds?
In the Money Bliss Steps to Financial Freedom, the first two steps focus on getting organized and establishing an emergency fund.
Wait to start any sinking funds until those steps are complete.
In Money Bliss Step 3, begin a few basic need-based sinking funds. Sinking fund examples would be car repairs or home repairs.
After any debt is paid off, then you can begin fully funding a rainy day fund (always known as 3-6 months of expenses). That is the point you can start as many sinking funds as your heart desires.
Check this out: Where to Save Money (Better Options Than Under the Bed).
How Much Should be in A Sinking Fund?
Well, that depends.
Honestly, I hate that answer, too. But, everyone’s financial journey is unique just to them.
For instance, a car replacement fund would max between $15,000-30,0000 pending on what the car preference.
On the flip side, a clothing fund of $500 should suffice.
Sinking funds create choices. Choices open up financial freedom.
Is there some magical sinking fund formula?
No. It is all personal choice. Here is a good start to learn the ideal household percentages vs. your actual numbers.
Just remember a sinking fund is money saved by you for a future decision.
Where to Keep Sinking Fund Money?
A couple of different options to choose from depending on your preference.
It is okay to have multiple savings accounts for sinking funds. We do!
Why? Because it is easier to know how much money is allocated to what fund.
A terrific option is a high interest online savings account. The key is to set it up and don’t delay.
Once an account balance is higher than $10,000, look into an investment account for the excess. Yes, there is risk, but there is also a possibility of higher returns.
Understand: The Best Methods of Budgeting You Need to Know
Sinking Fund Examples:
- Car Service / Repair / Auto Registration
- Home Maintenance / Repair
- Medical Expenses
- Education Expenses
- Replace Furniture & Electronics
- Kid’s Activities
- Pet Needs
- Baby / stork fund
- Property Taxes
- Misc Utilities (sewer, trash)
- Association Dues
- Babysitting Money
- Income Tax
The list for sinking fund examples could go on and on.
The Oh No Fund!
This is the last sinking fund example we are going to talk about today. It is the Everything-Lumped-Together-And-Hope-Nothing-Happens-Fund.
This time of fund is for people who just don’t want to keep track of a bunch of accounts, live within their means, and want simplicity.
The Oh No Fund!
What are your favorite sinking funds? Which are the most important in your household?