I’m glad you asked. I have heard budget bloggers talk about sinking funds and how important they are to their financial well-being. I would be so amazed by the large amounts of money people were able to save all while making it look so effortless. However, I always thought to myself “I’ll check into that later” and then conveniently forgot about it…until a few months ago.
So, let me take you back to August 2019. I am sitting on my couch enjoying the ice cold air conditioning (it’s August in Arizona. Need I say more?) and I’m running through my head Christmas and birthday gift ideas for my kids. They both have birthdays in December, lucky me. Naturally, I start running an invisible tally in my head until I make myself queasy from the grand total. That’s when a little voice in the back of my head (like way in the back…like under a box, even) whispers “try sinking funds, you must.” That’s when I actually made the effort and dove head first into sinking funds. I haven’t looked back since.
Sinking funds are money that you set aside to help soften the hardship of an expected future expense. These are expenses like holidays, birthdays and vacations. It makes it more manageable to save small amounts of money over a longer period of time versus trying to save a huge wad of cash in a short amount of time. I like to think of sinking funds as the chisel that is slowly chipping away at something. I know what you’re thinking. Melissa, isn’t this like an emergency fund? Let me explain.
Sinking Fund vs Emergency Fund
Although they may look alike, talk alike and sound alike, they are more like cousins than sisters. Both sinking funds and emergency funds are methods used to save a large amount of money. However, here are the distinct differences between the two.
Initiating My First Sinking Fund
After I educated myself on what a sinking fund was, I decided to give it a try. I decided I need to find a way to save $800 by Christmas. Here’s a sample of me putting my thoughts down on paper lol.
This was my plan. If I put away $100 every paycheck for the next 8 paychecks, I’d have enough money for my December occasions. I decided to make a cash envelope for this sinking fund. This method made it easy for me to see my progress which only motivated me further. Get this free cash envelope here!
What Do I Really Think of Sinking Funds?
Honestly, sinking funds (IMO) are genius! It really isn’t a new concept, if you think about it. It’s reminiscent of my childhood piggy bank. I remember saving every penny I found so I could buy the new Corvette for my Barbie dolls. This is the same concept…only I am older and I don’t play with Barbies anymore.
I really enjoyed using a sinking fund for my December occasions. Utilizing sinking funds is something I will continue to do from here on out. In fact, I have already started my sinking fund for Christmas 2020. I created a cute cash envelope that also doubles as my tracking sheet. Check it out in the Free Stuff tab above. You simply download it, print it out and use it to save for your holiday spending. Happy saving!