Budget How-To: Sinking Fund

Today we start a new series! We’ll be covering different categories of a budget to give you practical knowledge for starting or improving your own budget.

A budget is the building block of good finance. That is what will help you track your money and hit your financial goals.

The Sinking Fund

This is a fund created for anything that is predictable enough to save for. If it’s predictable, start a sinking fund for it.

One easy example is Christmas.

Christmas happens on the 25th of December every year! That’s the definition of predictable.

Creating a sinking fund for Christmas is as easy as this:

  1. Start one in your budget.
  2. Figure out how much you’ll spend at Christmas.
  3. Divide that number between the number of months till Christmas.

Example Time

The average person spends about $900 on gifts at Christmas. Let’s say our average friend, Steve, didn’t thinking about Christmas until this month, October. Steve can create a sinking fund then budget $300 for it in October, November, and December and boom! Steve doesn’t have to shell out $900 in December because he prepared in October and November as well.

Better yet, our average friend doesn’t have to pay off that $900 in January because he wasn’t prepared.

Budgeting App: EveryDollar

This is my favorite budgeting app. It helps you budget by encouraging you to give every dollar a place. Then you won’t be spending “extra cash” on coffee or Chipotle because you have it. Every extra dollar is given a place so that you can reach your financial goals more quickly.

It’s harder to take money from your savings category if you want to eat out!

I have a sinking fund for new tires and here’s how to make it on EveryDollar.

  1. In the first image, I created a new line in my budget and named it tires. I added $50 to the line. Then I selected “Make this a fund.”
  2. In the second image, it shows instructions for how to use a fund for saving. I selected the blue “Make this a fund.”
  3. In the third image, I set a savings goal of $600.
  4. In the fourth image, I can see that after 12 months of saving, I have enough saved in a sinking fund for new tires!

Christmas is coming. Start saving today!

I hope you understand the importance of creating sinking funds. Christmas is coming, set one up today! Think through whatever else may need a sinking fund. Tires? A home downpayment? It works for anything.

Financial Coaching Designed for You

As always, if you find you are in need of help, set up a time with me for free and we’ll talk your money and your goals. I’m a Ramsey trained financial coach and I love talking money and providing hope. Just set up a 30-minute call with me and I’ll listen to your situation and help you determine what needs to happen. My guarantee is if you don’t make progress, you get your money back. I promise the investment in coaching will give you payback many times over.

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