How Creating a Sinking Fund Can Eliminate Stress
- Rebekah Gamble
- Oct 11, 2020
- 5 min read
Updated: Aug 22, 2021
It's impossible to save for everything but you can surely try! Having a Sinking Fund can make a sticky situation where you're short on cash easy to handle. Say goodbye to worrying about how you'll pay for an unexpected flat tire and hello to adulting and peace of mind.
We've all had a sinking fund at one point whether we realized it or not. The money that we stashed and dipped into when we were short on cash, was in fact a sinking fund.
Having one will not only make your life less stressful, but you won't feel bad about spending money on well... anything
Saving with a purpose can make planning for the unexpected easier to juggle and balance. Life can be hard enough without having to worry more about money.
Keep reading to find out what a sinking fund is, why you should have one, and a few frequently asked questions.
Related Post: This is why you can't save money
What is a sinking fund?
A sinking fund is money put aside for the purpose of spending and is not meant to be saved for a long period of time. It's not money you'll carry with you until retirement, or have put away for a an unexpected rainy day.
Instead you'll use it when you realize you don't get paid until tomorrow but you want to go shopping today. Another example of a sinking fund can be saving saving up for a new phone or knowing that a large (or typical) reoccurring expense is approaching such as rent, annual fees, or tuition.
Spending from a Sinking fund can include keeping track on a spreadsheet or it can include simply taking out what you need. Just make sure any cash (or withdrawals) from a sinking fund are acknowledge because the worst thing you can do is think you still have money saved and your piggy bank is empty.
Do I need a sinking fund?
Yes.
Earlier we learned that sinking funds can be used to cover expenses that you're planning for such as tuition or a recurring bill. But the idea that most people enjoy thinking of is planning for new purchases.
If you want to save for a tablet, instead of taking half of your check and buying it, you can put $100 to the side, and keep adding money until you have enough. The point of having one or several sinking funds is that you can eliminate financial stress and financial anxiety.
Stress over bills and simply living should not be as common as it is in todays society. Not only can stress cause harm to your body and weaken your immune system and even promote aches and pains but it genuinely does not feel good.
Life is cruel enough to us. There's no need to be unkind to ourselves - Bodhipaksa author of This Difficult Thing of Being Human
Is it the same as my emergency fund?
Nope.
Your emergency fund is for emergencies. It's for the COVID disaster that corrupted 2020 and left too many people unemployed. Emergency funds are also for broken items, losing your wallet, emergency flights, or whatever else your lifestyle deems an essential emergency.
The goal for an emergency fund is different. Hopefully it will never be spent before you're actually in a situation where it's necessary. If you found yourself needing extra money then you would use your sinking fund and replenish it afterward.
A car accident, being short of rent money, a sudden flight, even a medical bill can count as an unexpected event.
What can I spend my sinking fund on?
You can spend it on anything that you want to plan for.
Maybe you know the following semester you'll have to pay for a class or that you want to go on vacation and have spending money.
Another example, is wanting to plan for a date night. A Christmas Fund is a HUGE way to prevent holiday blues and not bring unnecessary bills into the new year.
From each check you can put money into one fund [or into multiple] and when you need it, the money will be there.
How do I budget for it?
You can do it the same way you do any other basic budget. Add up your expenses subtract it from your income and see what's left over.
Just remember to be realistic. It's nice to have a sinking fund that actually hits your goal of savings. But if you end up dipping just record the amount that's missing and keep it moving.
This is an ever growing and decreasing fund that comes without guilt. If you need help managing your money and are looking for a new budget style try out the "No budget-budget" or the "50-30-20" budget. Both budget styles can help you get financially prepared for life events through a sinking fund.
Where do I save it?
You can do whatever feels comfortable. Try using both cash and an account to see which one feels easier to manage.
Savings account
If you put it in a savings account you can use your regular bank provider or you can choose an account with a high yield percent interest. Chase bank offers savings accounts where interest is about 0.01%.
It's more convenient to have a physical branch to go to but many of the banks that give 0.50% and higher in interest are online. When choosing a bank make sure that you check out the reviews of the bank. Placing your money in a bank with bad customer service or terrible services can be frustrating and increase financial anxiety.
If you're just starting out and would rather keep your money in any regular low interest bank like chase it's okay. Financial literacy and knowing why you're doing something and what you're doing with your money is so important to your financial health. Make sure you are making money moves based on things you actually value.
Cash
Another method is saving it in a trusted and safe environment in the form of cash. For this you can use the cash envelope system, or store it anywhere else available.
Cash Envelopes is a saving/ budgeting method in which you store your money in little baggies or envelopes to keep track of your spending/saving
If you don't trust yourself to hold it, you can ask someone else too but keep in mind you want easy access to your funds.
If you want help tracking your saving and spending feel free to view the SHOP and purchase your own printable budget tools!
What are the benefits of a sinking fund?
You can invest in a shopping trip with friends. Blow $100 on equipment needed to learn how to do acrylic nails at home, or spend $50 on overpriced airport food and know that you still have savings at home.
Your bank account remains unscathed and this is a great way to support your desired lifestyle responsibly.
And with this, you are in full control when it comes to how you set up your financial goals. Financial goals can be as big or small as you make them and every single one of them is worth celebrating. When you're scrolling through social media and seeing your friends on vacations, throwing huge parties, or any thing else that can be seen as "living their best life" just take a breath.
If you're working on saving your first $100 in a sinking fund that is the path you are on. It's the right path for you and soon this path will lead you to everything you desire.
In conclusion
A sinking fund is a must have once you learn what it is. It's never too late to start one and you wont regret it. Don't beat yourself up over not having a fund already and remember that you are going through life at your own pace.
Let us know in the comments what you think of sinking funds. SCROLL for your FREE guide to become your best self!
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