How many sinking funds categories do you currently save for? Sure, if you’ve been budgeting a while, you probably know all about sinking funds and why they are such an important component to a budget but are your sinking funds actually protecting your budget when you need them to?
Do you have an adequate amount of sinking funds or do you find yourself still coming up short?
If so, then you may want to consider creating additional sinking funds to make sure you’re prepared for any expenses that may come knocking!
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WHAT IS A SINKING FUND BUDGET?
Before we hop into the actual sinking funds categories let’s take a minute and review what a sinking fund is and how it fits into your budget.
Check out this post for an in-depth look at sinking funds but a quick reminder never hurt anyone: basically a sinking fund is just a pool of money that you’re saving to cover an expense that you expect will occur sometime in the future.
Sometimes you know exactly when that expense will occur and what it will cost – as in an annual car insurance bill that comes the same time every year.
And sometimes you have no idea what is coming – or when – but you have a reasonable expectation that it will happen at some point and you want to be prepared so you don’t have to accrue debt to cover said expense.
Preparedness is a way of life that brings its own rewards.
– spencer w. kimball
Do you need to use sinking funds if you’re already budgeting?
Yes, in my opintion they are a necessity.
Sinking funds don’t replace your budget – they support it.
Your budget and your sinking funds work together as a powerful financial team to make sure you’re prepared for anything that may come your way and avoiding debt in any circumstance.
If you don’t have sinking funds and you incur an expense you can’t afford to pay for with your regular income, one of three things will happen.
- You’ll take the money from your emergency fund. If this expense happens to be an actual emergency, then cool. No problem. But if it’s not then you get into the habit of taking money out of your emergency fund every time you need a little extra and before you know if you’ve depleted your emergency fund. *Skip to number 3*
- You will have to skip paying something else or cut/reduce another item in your budget to free up funds to cover this expense.
- You will have to use some form of debt to pay for the expense. Borrow from a friend or family member, charge it on a credit card, or take out a loan.
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Is there another option?
Yup. Create and maintain sinking funds in various categories giving you an extra source of money you can pull from to pay for specific expenses when they occur, allowing you to keep all of the other items in your budget untouched and intact!
WHAT SINKING FUNDS SHOULD I HAVE?
I can’t tell you that – that has to be a decision you and your spouse/partner make when looking at your specific budget and your specific financial needs.
As mentioned above, if you have very little wiggle room, you may want to add in additional sinking funds categories.
If you’re someone who hates managing and organizing your finances and keeping track of multiple accounts you may opt to consolidate and group a few different categories together.
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It’s also important to note that just as your monthly budget is fluid, so should your sinking funds be.
If you find you no longer have the need for a specific category rename it to something that is actually needed or get rid of it altogether.
I’m not a big fan of overcomplicating things – it requires extra brainpower to maintain, often causes confusion, and eventually leads to failure.
Sinking funds support your budget and allow you to continue to budget consistently so keeping your sinking funds strategy simple and manageable will improve your ability to stick to your budget!
SINKING FUNDS CATEGORIES
Because we all have different financial needs and different budgets, we likely have different amounts and types of sinking funds as well.
Many people take a less is more approach when it comes to sinking funds in an effort to keep things more streamlined and avoid confusion but I have found when you are living on a tight budget with little wiggle room each month, you may find it beneficial to create additional sinking funds to minimize having to borrow from other sinking funds or an emergency fund to cover an unexpected expense.
Let’s discuss seven essential sinking funds categories that may be a good fit for you and your budget… (in alphabetical order, because I’m weird like that 😆)
A quick note:
Before we dive into the categories – some of these may not apply to you, and that’s ok. Feel free to replace them with a different category or scratch them off your list altogether.
I have included them because although they might not be crucial to everyone if they are applicable to you, they likely represent an essential part of your life and your budget and should be included.
Christmas
For most of us who celebrate Christmas or even Channukah, it can often require a large chunk of change.
Personally, we lump Christmas, Thanksgiving, and New Year’s together and create a Holiday budget, and our Christmas sinking fund covers allll of the holiday expenses (that’s just proven easier for us).
There is nothing worse than working hard on your finances all year long only to get to Christmas and have to pay for all the gifts on a credit card because you have no extra money and you didn’t prepare for it…as if it doesn’t come on the exact same day every. single. year. 😳
Stash some money in your Christmas sinking fund throughout the year and you’ll experience less stress and more joy the next time around!
Additional items that can be covered with your Christmas sinking fund: other holidays, meals, parties, decor, holiday cards and more.
Home
This category is one of the most important.
If you’re a homeowner (or a renter who is responsible for home maintenance) then you know how quickly you can burn through your savings when something needs to be replaced or repaired in your home.
Building up a nice chunk of change in a home sinking fund will be such a lifesaver for you the next time your hot water heater floods your basement or your central air goes out…on the hottest day of the year (because that’s the way it always works, right?).
Additional items that can be covered with your home sinking fund: home maintenance, homeowner’s taxes, insurance, HOA fees, and more.
Kids
If you’re a parent you know how expensive kids are…they’re lucky we love them so much 🤣
Keeping a specific sinking fund just for your child-related expenses won’t make them any less expensive but it will help you be more prepared when they’re nickel and dime-ing you to death.
From book fairs to field trip slips brought home the night before, this category has come in handy more times than I can count!
Additional items that can be covered with your kids sinking fund: sports fees, sports equipment, school items and supplies, allowances or commissions, birthday parties and more.
Medical
I don’t even have to mention how costly medical expenses can be, and they always seem to come up at the worst times…
A medical sinking fund is your weapon against random illnesses…that inevitably spread to the whole family.
And when you get prescribed an expensive (yet, necessary) medication and costly co-pays.
This is a good category to prioritize, especially if your medical insurance is less than stellar.
Additional items that can be covered with your medical sinking fund: co-pays, prescriptions, hospital bills, doctor fees, vision costs, dental costs, and more.
Pets
We sure do love our furry friends but they are notorious for costing a pretty penny!
When our pup suffered from a bout of pancreatitis our vet bill cost more than our mortgage payment!
Yet, of course, we want to do everything we can to keep them healthy but sometimes our budgets just don’t have enough margin to come up with a few hundred – or thousand – dollars when Fido decides he wants to chow down on a plant that doesn’t sit well with him.
This is exactly why if you’re a pet owner of any kind you need to have a pet sinking fund.
I promise you the day will come when you are grateful you had the foresight to set up this fund – that way you’ll never have to choose between saving your kitten’s life or making your rent payment!
Additional items that can be covered with your pet sinking fund: pet insurance, food, toys, gear, pet sitter, and more.
Vacation
Ahh, remember the days when we could travel and book a vacation in advance – and actually get to enjoy it instead of having to cancel?
Yeah, me too…I’m confident we’ll be back in that place someday (hopefully sooner than later) so I’m still contributing to my vacation sinking fund – and I think you should too!
Not all vacations have to wipe out your entire savings account, but why use your savings account to fuel your wanderlust at all?
Just start a vacation sinking fund and by the time you’re able to take one, you may even have enough money in there to fund the entire trip!
Additional items that can be covered with your vacation sinking fund: tolls, car rental, flights, pet/house sitter, Uber fees, and more.
Vehicles
Last, but definitely not least is a vehicle sinking fund…this one is also very important.
Listen, you may be driving Ole’ Faithful around town but it’s inevitable that at some point in time you will need to fund some repairs or at the very least, regular maintenance to keep your car running as efficiently as possible.
Unless you’re an experienced mechanic, chances are you’ll be having to foot a decent-sized bill.
Imagine how good it would feel to have the money you need sitting around in a sinking fund just waiting for the day you need to use it!
Additional items that can be covered with your vehicle sinking fund: vehicle maintenance, new vehicle, gas, inspections, license renewal, and more.
HOW DO YOU ORGANIZE YOUR SINKING FUNDS?
Simple. However you want!
Personally, I group a bunch of my sinking funds together with other spending categories and use the Real Money Method to categorize them all into different online bank accounts.
I also keep a written log (because I’m a super nerd) in my budget binder so I can quickly check any of the balances at any given time without having to log in to my bank account.
You can keep a notebook and track one sinking fund per page, record them on a sheet of plain paper, or if you prefer a digital option, try an app like Mint!
My best advice? Find a way that feels easy and convenient to you or you won’t do it…
One final thing…this list is certainly not all-inclusive…you can create a sinking fund for literally anything your heart desires so don’t limit yourself according to this article – do what feels best for you and your personal financial situation!
What do you think of this list? If you already use sinking funds as a financial tool, which categories do you use? I’d love to hear!
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