What is a Sinking Fund

Whether you’ve been budgeting for years or are new to managing your money, planning out your sinking funds can be a key tool in your arsenal. A sinking fund is money you’ve put aside for pre-planned spending to cover your butt down the line. The basic idea behind it is to plan for those things that aren’t usually in your monthly budget.

I can tell you from personal experience that money spent from month to month can seriously fluctuate. For us, it was sports fees, school fundraisers, car maintenance or a quick family trip. There are all things we CLEARLY saw coming but didn’t really save for. We had this awful, fly by the seat of your pants habit of hoping the money would appear by the time we needed it. Worse, even when we started budgeting we still didn’t use this method. Instead we only planned for what we would need in a typical month!

Using a budget without sinking funds is kind of like shoveling your driveway in the middle of a blizzard. Lots of hard work being continuously, and sometimes subtly, undone.

Being able to meet those fluctuations with a savings plan that puts a little extra cash aside where it is handy is key. Actually, it can be the difference between keeping things afloat and tanking your budget. There are a few different ways you can create this additional budget padding. Depending on whether you budget with a personal spreadsheet or you use a budgeting app, like YNAB, there are multiple ways you can work in a little extra padding.

To effectively build and track my fund I use a combo of a few things. I have a separate savings account,we use a Goldman-Sachs online savings account (high interest rate and super easy to set up). I also have a nifty Google sheet I built for myself that tracks each goal individually (it’s rainbow colored therefor awesome, enough said). Would you like a copy of the Google sheet? That link is coming soon!

So, thanks for following along. I hope this provided some useful information and if you have any questions or need help I’m always happy to help. Hit me up in the comments or the Contact page.