Sinking Funds – How to Save Money

Do you go into a tailspin because of the expenses that you know are coming, but didn’t save for? Save money with Sinking Funds to solve your budgeting problems. 


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Sinking Funds - how to save money


(This post may contain affiliate links. For more information, please see my disclosure.)


What is a Sinking Fund? 

A sinking fund (or targeted savings account) is money set aside for a certain purpose. It is a temporary way to save for something specific. In other words, a sinking fund is for an expense that is expected, but not in your regular monthly budget. Examples are car insurance, birthdays, Christmas, computer replacement, vacations, sports fees.  

You can set aside a bit of money each month for these anticipated expenses. Christmas is a perfect example of a sinking fund. You know that Christmas comes around the same time every year and you know that you are going to spend money on gifts, food, travel, what have you. So instead of cramming all of those expenses into 2 months and either blowing the budget or accumulating more debt, you start a sinking fund for Christmas expenses and save for Christmas all year long. 


What is the Purpose of a Sinking Fund? 

Sinking funds will help you stay on budget, avoid new debt and alleviate financial stress.  


Stay on Budget 

It’s the first of the month, and you have your budget all in place, you know where every single dollar is getting spent. Those dollars already have jobs for the month. Oops, the Amazon Prime bill is due on the 20th and you forgot all about it. You can’t go back to the beginning and budget for it or save for it. Now you have to move money around into different categories, and possibly not pay one bill so you can pay the Prime bill. We have all done this!

If you have your sinking fund account set up for Amazon Prime, and you are saving part of it every month, you would not have to play with your budget and move money around. The money would already be there because you have been saving for it all year long. Just pay that bill! And then start saving again for next year.

Your budget will stay intact every month because you have included your sinking funds. Imagine that feeling every month? You know what is coming up for periodic expenses and you have money saved and ready to go when the due date comes around.


Avoid New Debt 

Sinking funds will also help you avoid new debt. In the above scenario, you could have chosen to pay for Amazon Prime with a credit card if you didn’t have the money saved. But then you would be increasing your debt load. Aren’t you trying to get out of debt? You don’t want to continue carrying debt and maybe even increase it. Planning for these expenses and saving for them every month with not only help you get a better handle on your budget and you might even find more money to sling at your debt.


Relieve Financial Stress 

Moving things around in your budget, not paying bills and increasing debt all contribute to financial stress. Wouldn’t you like to pay your child’s sports fees without feeling the pinch someplace else because you already planned for it and saved the money?

I have definitely been there when the hockey bill shows up in my inbox and I had to all of the sudden come up with $700 for each boy. That is a lot of money and I certainly did not have enough income to just move things around to be able to pay that bill. I found that saving for that expense all year round greatly reduced my stress when it came to money and budgeting.


How to Determine your Sinking Funds 

Take a look back at your expenses for the last year. What did you forget to budget for? Sports, car insurance, Christmas, birthdays? The list can be endless. These are the expenses that you can count on every year.

Think about the expenses that you have coming up. Will you get a discount if you pay your car insurance all at once instead of breaking it into payments. I know I do. So start a sinking fund for car insurance and save that money for a once a year payment to take advantage of the discount. You might be surprised at the companies that will offer discounts if paid once a year instead of in increments.

You can use the workbook in Sink or Save to help you through this process of determining your sinking funds.


How much should I put in each Sinking Fund? 

Once you have your list of sinking funds, you then have to decide how much money you need to have in each. Again, your list of past and future expenses can help dictate these amounts.  

Split this amount into monthly increments or even smaller bits, maybe per week or per pay period. Setting aside these little bits every pay period or every month is the key to sinking funds.


Where to keep your Sinking Funds?

Okay, so now you have a plan to save all that money, but where are you going to keep it? At home under the mattress? Ummm, no!

There are a few options here. You can take out the cash and keep it in envelopes at home. Although if you are saving a lot, like for a car, you might not want to keep that money at home. Make that money work for you, deposit it in a 6 month CD or something of a similar nature.

You could keep it in the same savings account as your emergency fund.

My favorite option is to keep it at a different bank, whether that is a local brick and mortar bank or credit union or an online bank, makes no difference. I recommend a different online bank than the one you normally use because it will really make you stop and think if you are using this money for its designated purpose. It will take a few days if you need to transfer this to your main account. It will give you the chance to really think about your purchase.

My favorite online bank account is the Capital One 360 account. I have a few set up, and you can have as many as you want, they are free!  


Where to keep track of Sinking Funds 

You can keep track of your sinking funds on a piece of paper, but you will constantly be updating it every single time that you add money to a particular sinking fund, and every single time that you take money out of a sinking fund to use on an expense. That is a lot of writing and erasing, a big mess!

I recommend a spreadsheet. And guess what? I have a sinking funds spreadsheet already designed for you! The spreadsheet includes goals, a cover spreadsheet that details all of your sinking funds (including goals and balances) and then individual spreadsheets for each sinking fund.

This spreadsheet is the bomb! If you are looking for detail, this has it. You will be able to track all of your expenses and goals in one place. Each deposit, you can track. Withdrawals, you can track separately. The individual spreadsheet has formulas built in that connect to the main spreadsheet so you can see all of your sinking funds in one glance.

You can analyze your goals and see your progress. You can calculate how long it will take you to reach your goals. Yep, I am geeking out over this spreadsheet. It is one of my favorites that I have designed!


Sink or Save 

This targeted money saving system has it all. If you want to have a plan and save money for designated expenses, you NEED this to organize your savings accounts.

You will get the workbook which will guide you through the process of determining the sinking funds/targeted savings accounts that you need.

  • Learn which accounts that you need to save for RIGHT NOW.
  • Gain a better understanding of your money and your behavior towards saving money.

You will also get the spreadsheet where you will keep all of your sinking funds/targeted savings accounts organized in one spot.

Your savings goals and your total amount saved will all be in one place.  


You will have a plan. All the time. Every day. Every pay period. You will have a plan for your savings. Your financial future will look bright! 


NO MORE EXCUSES! Create that plan today.


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