Complete Guide to Sinking Funds – Why They are So Important?

May 11, 2017

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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.

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.

Complete Guide to Sinking Funds. Money Basics for Beginners. What is a sinking fund? Why are they so important to stop living paycheck to paycheck? Get the Cents Plan - how to Budget.

Various Types of Sinking Funds:

  • Car Service / Repair / Auto Registration
  • Home Maintenance / Repair
  • Medical Expenses
  • Education Expenses
  • Replace Furniture & Electronics
  • Gifts
  • FUN
  • Vacation
  • Kid’s Activities
  • Pet Needs
  • Clothing
  • Baby / stork fund
  • Property Taxes
  • Misc Utilities (sewer, trash)
  • Association Dues
  • Babysitting Money
  • Giving
  • Income Tax

By utilizing sinking funds, then an emergency expense does not pop up here and there. It is easy to set up sinking funds in your Cents Plan. Each month the same amount of money is allocated to the sinking funds. Take out the roller coaster effect of making ends meet.

Understand: Cents Plan Formula

How many sinking funds to use? That is completely up to you.

Read: Money Bliss Steps to Financial Freedom

When in Money Bliss Step 1 and 2, focus on getting organized and establishing an emergency fund. Wait to start any sinking funds! In Money Bliss Step 3, begin a few basic need-based sinking funds. After Money Step 4 of a fully funded rainy day fund, start as many sinking funds as your heart desires.

Where to keep the money for sinking funds? Check this out: Where to Save Money (Better Options Than Under the Bed).

A couple of different options to choose from. Those include a separate saving account or a cash envelope. If you utilize primarily cash, I highly recommend a hiding place like this or this. 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.

Complete Guide to Sinking Funds. Money Basics for Beginners. What is a sinking fund? Why are they so important to stop living paycheck to paycheck? Get the Cents Plan - how to Budget.

Enjoy FREEDOM!

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This is YOUR Cents Plan. Not a budget.

You decide where you want to spend your money.

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