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Sinking or Slush funds are savings for specific items that you keep adding to. The account may or may not go away once you reach the goal. Here is an example:
Sinking Fund: Car Maintenance
$50.00 per month
The money accrues every month until a repair is needed.
Sinking funds are very beneficial to budgets because you are “stashing away” money for a future expense. This means when an $800.00 car repair comes up you may only need to come up half. The ultimate goal is to avoid using credit cards by being prepared.
Sinking funds are meant to be SPECIFIC so you should have one for each area you want to sink money. Like car and home repairs, co-pays, vacations, Christmas, Birthdays, Insurances, babysitting, and entertainment. The list can go on forever honestly.
You can keep sinking funds in a separate account at the bank or in cash envelopes at the bank. You can keep all your sinking funds in one savings account but I advise against that because you have to be a very detailed record keeper if you are going to go this route. Please confirm with your bank that there are no minimum amounts to be kept in a savings account. You do not want to incur fees for savings money!
We use these plastic envelopes for our sinking funds because they are much more durable than the paper ones.
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Sinking funds can also be a great way to save for larger items like college courses and home down payments. They give you visual evidence that you are getting closer and closer to reaching your goal.
Do you use sinking funds? Do you have any questions about how to set them? Let me know and I will be happy to answer them.
Not sure how you can afford to start sinking funds? Family money coaching may be a great option for you, learn what is involved and how to
WATCH THE FULL VIDEO ON SINKING FUNDS HERE:
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