Sinking funds, also known as the savior of the budget.  These beautiful little funds can be the difference between staying on budget for the month or having your budget completely blown out of the water.  

You may be wondering what a sinking fund is and why I think it is so amazing.  Basically, a sinking fund is like a mini saving account for a certain expense you know you will have in the future.  These are expected expenses; not emergencies.

Instead of being that person who has their budget derailed by an expense they knew was coming, but they didn’t save for (like Christmas, an oil change, the water bill); you will be that rockstar who stays on budget because you saved for the expected expense and had the money when it was needed.

Sinking funds are most helpful for all of those known expenses that are happening less frequently than once a month.

When you are first starting to use sinking funds, it can feel a little overwhelming because there are so many little things that you probably need to be saving for.  Add that to trying to budget and it can feel like a lot.

So, instead of panicking and not doing this because it seems like a lot of work, take a minute to figure out what you actually need to be saving for and put that into your existing budget.  To help get you started, I have a list of the top 13 sinking funds categories you may need. Keep reading to get started!

 

Pro-tip:  When I first started doing this (I was using sinking funds before I knew they were called “sinking funds”), I looked at my transactions from the previous year and picked out recurring expenses I would run into in the coming year, but wouldn’t happen on a monthly basis.  

Then I decided if the expense was something I could handle within my normal budget for that month or if it was going to be so big I wouldn’t be able to swing it.  For example, my husband will need a new pair of shoes every 6 months because of how much he walks at work. I know this. When that time comes we can swing $50-$100 for shoes within a certain month.  We do not need to save $16 every month to save $100 for shoes in 6 months.

Versus, our water bill is $400 once a year.  I know when that month comes up, we can not just cover an additional $400 expense.  Instead, we save $33 every month throughout the year to have the money when that bill comes due.

See the difference?

 

Start with looking through your old transactions and write down

• what the expense was,
• when it happened and
• how much it cost.

Only you will be able to determine if you can cover the expense or if you need to be saving for it in a sinking fund.

To help you get started with this, I have put together a list of 13 common sinking funds you may need.

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Sinking Funds Categories:

 

1.  Vehicles

This category includes vehicle repair, tires, oil changes, and annual registration.  You may be able to handle an oil change without making it a fund, but funds for repairs and registration can really take the pressure off when something comes up.

 

2.  Gifts

This includes all gifts.  If you want to keep Christmas separate, you may absolutely do so, but I keep all mine together.  Gifts include birthdays, graduation, showers, weddings, Christmas, any gift you buy for any occasion.

Pay attention to family and friends who may be close to becoming engaged or those you know have a wedding coming up or are trying for a baby.  This will help you better prepare for the amount of money you should have saved.

 

3.  Medical

Some people may have HSAs (health savings account) which are nice because it is savings that happen pre-tax.  But, if you do not, creating your own medical sinking fund for doctor visits and prescriptions can really take the stress out of an already stressful situation.

The last thing you want is to skimp on healthcare because you don’t know if you can afford it.

 

4.  Dentist

Saving for the dentist is super important.  I know not everyone has dental insurance, but they do have dental saving programs available to significantly cut down the cost of cleanings and x-rays.  Teeth are so important and lots of illness can come from dental disease.

If you know you are going to have a cleaning every 6 months, contact your dentist, find out how much a visit will be and save for it.  Having the money to pay for your regular visit will make it more enjoyable (otherwise you will look like me and leave a sweat imprint where you were sitting….I hate the dentist!)

 

5.  Vision

This is in line with the dental savings.  If you know you need contacts, exam or glasses every year to every other year, you should be saving for it.  Call your doctor’s office and ask them how much you can expect to spend there at your next visit and start saving for it.

Depending on the type of contacts you have, most people can’t afford to just drop $300-$400 on a whim for contacts and/or glasses.

 

Pro-tip:  I would never recommend putting your health on the back burner while you are trying to get out of debt or saving money for a purpose.  You should prioritize taking care of yourself (medically). If you aren’t healthy, it will be that much harder to accomplish debt payoff and live the life of your dreams!

 

6.  Pets

In addition to their own emergency fund, pets should also have a sinking fund for annual expenses.  If you don’t know what expenses to expect for your pet, contact your veterinarian and they will be able to give you an idea.

I am a veterinarian, so if you don’t want to call your veterinarian or if you are thinking about getting a pet, you should definitely read this.  It will give you an idea of the expenses you can expect if you were to get a dog or cat.

 

7.  Water/Sewer

If you have a water/sewer bill that comes due annually, biannually or quarterly, this is a great one to save for.  Once you break this bill down on a per month basis, it becomes much more manageable.

 

8.  Life Insurance policies

If you are new to the idea of life insurance, you need to check this out.  If you have life insurance on yourself and/or your husband, it is most likely you have this premium being charged once or twice a year.

It typically isn’t a huge expense, but if you aren’t prepared for it, you could be looking at a $150-$300 hit if you both have policies.

 

9.  Clothes

There always seems to be a need for clothes.  My husband and I did a two-year spending freeze on clothes so we haven’t had this sinking fund for a while.  But, if you are big into buying clothes, you should definitely have this as a fund.

When you are out shopping and see something you really want, you can check and see if the money is there for it or not.  No more buying cute clothes and regretting it!

 

10.  Home maintenance/repairs

If you are a homeowner, these are the things that can come out of nowhere and destroy your budget.  Things like a leaking water heater, your furnace goes out, your AC suddenly quits, you have a serious ant problem, your wife accidentally backs into the garage door (whoops!).  I can think of one million home repairs that could come up.

Just to maintain our water drinking system in our home was $300 this year.  It is important to maintain your home to save you money in the long run, but if you don’t have a plan for those expected expenses, they will become emergencies.

 

11.  Big items for your home

This would include things like furniture replacement (new couch), new mattress, your child needs a big boy bed, you are expecting a baby and need a crib and changing table.  Those kinds of things are bigger items.

 

12.  Kid expenses

Ugh…the never-ending list, lol.  From birth to graduation, you are going to have expenses for your children.  This can include things like first year photos, sports costs, braces, dances, etc.

The point with these expenses is to think about what you have coming in the next year for your child.  What are the big expenses they will have that you would like to start preparing for now? Or maybe you know your child will need braces so you want to start throwing $20 into an account every month until you reach $5,000.  Start as early as you want!

Sinking funds create endless possibilities for saving strategies that you can tailor to fit your needs.

 

13.  Vacation

Don’t forget to have fun.  Vacations can be as big or as little as you would like.  I do not recommend taking vacations if you are in debt because that can really set you back.  But, I do recommend taking the time to get away and relax.

We live in a super fast-paced world and it is healthy for you, your marriage and your children to take a break from it, reconnect and explore a new location.  Vacations can be very restorative!

 

Once you have started to put sinking funds into place, you are going to notice you feel less stressed and a bit lighter.  Like some weight has been lifted off. Sinking funds will bring you one more gigantic step closer to always staying on budget.  Sinking funds will help decrease those, “oh crap!” moments when an expense comes that you probably should have known was going to.

Start with these 13 categories and see which ones will fit with your life.  Then look at your transactions from the last year and see if anything was missed that you should be saving for.  Don’t be overwhelmed by this. All you are doing is eliminating stress, and that is only a good thing!

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Do you have any additional sinking funds categories I missed?

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