A sinking fund, is basically a savings account that you fund with regular deposits (or withdrawals, in our case). We use sinking funds for a lot of our budget categories, about 10 "envelopes" worth. We currently have sinking funds for:
- Clothing
- Home Repair
- Car Maintenance
- Vehicle taxes and insurance
- Subscriptions
- Vacation
- Race entries
- Gifts
- Dinner out
- Pre-school (during the summer months when we don't have tuition)
These are partially funded with each pay check I get. We store these funds in either physical envelopes or a 'virtual' envelope where we use an Excel file to account for a money market fund at the Credit Union.
For example, the first time we put a budget to a paycheck, we allocated $15 for clothing. This went in an envelope. During the next two weeks, we didn't spend any money on clothing. The next time I got paid, we put in another $15, for a total of $30. Same thing happened the next two weeks. Eventually we had $90 in our clothing sinking fund. Then we bought about $60 worth of gently used kids clothes for our boys at a consignment sale. This left us with $30 to build back up. More importantly, it left is with no stress, because we were able to pay cash that we had saved and designated specifically for this purpose.
These funds are great because they account for things we don't need to buy every pay check and for things that take a while to save up for. I highly recommend the use of sinking funds for these and even more budget categories, since they're essentially savings accounts. And, I love savings accounts!
For example, the first time we put a budget to a paycheck, we allocated $15 for clothing. This went in an envelope. During the next two weeks, we didn't spend any money on clothing. The next time I got paid, we put in another $15, for a total of $30. Same thing happened the next two weeks. Eventually we had $90 in our clothing sinking fund. Then we bought about $60 worth of gently used kids clothes for our boys at a consignment sale. This left us with $30 to build back up. More importantly, it left is with no stress, because we were able to pay cash that we had saved and designated specifically for this purpose.
These funds are great because they account for things we don't need to buy every pay check and for things that take a while to save up for. I highly recommend the use of sinking funds for these and even more budget categories, since they're essentially savings accounts. And, I love savings accounts!
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