Have you ever been chugging along through your month, you are just nailing your budget, and then some stupid thing comes up that you should have remembered, but you didn’t?  Suddenly you are over budget by hundreds and you are kicking yourself for not planning better.

So freaking frustrating!

Now, imagine the exact same situation, but you actually have the money in savings to take care of it.  What a relief! No stress. This budget-saving stash of money is what some call a sinking fund. If you are totally new to the idea of sinking funds, they are going to completely change your life.  Trust me, this is going to be a game-changer for you.

You may be wondering what the difference is between an emergency fund and a sinking fund.  Glad you asked!

An emergency fund is money that is set aside for unknown expenses.  

True emergencies are things like losing a job, sudden medical bills, household repairs, your car breaks down, or you accidentally back into the garage door (yep, I did that).

A sinking fund is a known expense.  

It’s like a mini saving account for a certain expense you know you will have in the future.  I had been doing this for years but didn’t know it was called a sinking fund.

Sinking funds are super helpful for those known expenses that happen less frequently than once a month.  

These are things like

• quarterly sewer bills,
• dentist visits,
• eye doctor visits,
• car registration,
• new tires,
• life insurance,
• Christmas gifts,
• vacation,
• pet annual visits,
• or Christmas cards (I’m a nut about those!).

Sinking funds are an amazing thing you can do when you are serious about budgeting and getting ahead with your money.  These will be a total game changer and do not take much effort at all.

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5 Reasons You Need Sinking Funds

1.  Finally, break the paycheck to paycheck cycle.

If you have been struggling with living paycheck to paycheck, this is your ticket out!!  It’s as simple as setting up a sinking fund to give you a buffer of one month’s expenses.  It is really that simple to get out of that cycle.

If you live on a budget of $3,000 for a month, set up a sinking fund for that amount and any extra money you have gets thrown into that savings until you reach your $3,000.  Then you are always living a month behind. Your income no longer matters and you are ahead of your paychecks. When you get paid doesn’t matter because you are living on the paychecks from the month before.

Ahhhhmazing!!!!  This is freaking life changing.  Are you excited?? Get excited about this because it will change everything!

If you need more convincing, check this out.

2.  Take away the stress of unexpected expenses.

All of those expenses you know are coming (Christmas, school pictures, dentist appointments, contacts/glasses, subscriptions, etc.) don’t have to surprise you anymore.  When you have sinking funds for all of these things, it takes the major hit off your budget and you don’t sweat the less frequent expenses.

I used to panic every year when I got a $360 water bill.  I knew it was coming every January, but I never saved for it and it was a scramble when the bill came due.  Now, I budget $30 a month that goes into its own little savings account and when a water bill comes, the money is there.  No issues, no stress.

Imagine your life with no money stress over all those little things.  It looks like a nice life, right? Sinking funds take away all the stress and worry over unexpected expenses.

Read this if you want even more of our best-unexpected expense planning tips!

3.  You will have a plan for your less frequent expenses.

Plan.  My favorite word.  When you decide to set up sinking funds, you will have to put a plan in place for all of those less frequent expenses you have been ignoring up until now.  Instead of damage control when they come up, you will have a plan and be ready for them!

The easiest way to figure out all of these expenses is to go through your transactions from the previous year and pull out those random expenses that happened once or twice a year that you know you will have again in the next year.

Once you have a list of your expenses, then you can set up sinking funds for all of those different things.  Then you never have to worry when those expenses come up. You’ve got a plan and you are ready to go!

4.  You will stop the budget sabotage.

When you have sinking funds in place, those little expenses that have previously sabotaged your budget will disappear.  You may be thinking, but what about those totally random expenses, like when the dog ate the power cord to my cell phone?  Okay, that one you won’t have a plan for, but maybe you could then take the money out of your Christmas fund and give it to yourself as a gift (see what I did there?).  The beauty of all of these sinking funds is, if you are saving for something that isn’t an expected bill like gifts, vacation, or clothes, you can take money from those accounts if it is really needed.  

This will allow you to keep your budget on track and stop the feeling that you are being derailed month after month.  With sinking funds, you will finally feel like you are making forward progress!

5.  You will have a backup emergency fund.

I know I just told you sinking funds are not emergency funds so bear with me for a moment.  As a woman, financial security is very important. You should already have an emergency fund in place to use for emergencies.  

Once you have sinking funds set up, you will have extra money around that is earmarked for a certain bill/event/object.  Let’s say for a moment you have $2,000 set aside for a vacation you are wanting to take when you are hit with a $3,000 medical bill.  Because that vacation money isn’t something that is being saved to pay for your water or life insurance policy, you can change the name on it to medical if needed.

This, in a sense, provides you with a backup emergency fund.  Hello, security! This is such a blessing to have extra money that can be shifted around to cover expenses if new ones come up that are of greater priority than what you were originally saving for.  What a sense of peace that will give!

Are you ready to get started with setting up sinking funds?  I’m telling you, they are just amazing. They are the reason we have been so successful with our budgeting and have been able to use $90,000 toward debt and cash-flowing two children.  If you want to break the paycheck to paycheck cycle, have less stress, have a plan for your expenses, keep your budget on track and have a deeper sense of security, a sinking fund was made for you!

What sinking funds are you going to set up?

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