Yusra3
VIP Contributor
A sinking fund is a savings account dedicated to a specific upcoming expense. Regular contributions are made to the sinking fund so that enough money is available when the expense needs to be paid.
Sinking funds are useful for budgeting for large, periodic expenses like:
To create a sinking fund:
1. Identify the specific large expense you want to save for and when it will be due.
2. Calculate how much you will need to save in total for the expense.
3. Determine how much you need to contribute per month to reach the total by the due date.
4. Open a separate high yield savings account and name it after the sinking fund's purpose.
5. Set up automatic monthly transfers from your checking account to the sinking fund account for the contribution amount.
6. Continue making regular transfers until the target amount is reached.
7. When the expense is due, withdraw the funds from the sinking fund account.
8. Celebrate the satisfaction of saving up sufficiently ahead of a large expense! Then start the process again for the next one.
Sinking funds provide motivation, purpose and structure for saving for planned expenses vs. impulse spending.
Sinking funds are useful for budgeting for large, periodic expenses like:
- Car insurance payments
- Annual property taxes
- Vacations
- Holiday shopping
- Gifts
- Car repairs and maintenance
- Home repairs and improvements
To create a sinking fund:
1. Identify the specific large expense you want to save for and when it will be due.
2. Calculate how much you will need to save in total for the expense.
3. Determine how much you need to contribute per month to reach the total by the due date.
4. Open a separate high yield savings account and name it after the sinking fund's purpose.
5. Set up automatic monthly transfers from your checking account to the sinking fund account for the contribution amount.
6. Continue making regular transfers until the target amount is reached.
7. When the expense is due, withdraw the funds from the sinking fund account.
8. Celebrate the satisfaction of saving up sufficiently ahead of a large expense! Then start the process again for the next one.
Sinking funds provide motivation, purpose and structure for saving for planned expenses vs. impulse spending.
