Have you ever been in that stage of life where a major emergency hits and you feel totally unprepared? This was basically how Tom and I lived our lives for years. We let ourselves be blindsided by everything from vet bills, to car repairs, doctor visits, holidays and even some random kid’s birthday party. Something would blindside up and we were left scrambling to find the funds to pay for it. This meant we usually turned to our credit card…because it was for emergencies after all. The sad thing was, most of these things weren’t actually emergencies. We knew the holidays were coming, we know our car will have problems eventually. Kids get sick. Pets get sick. None of these things are all that surprising. So how do you prepare for the expected unexpected? Sinking Funds! I’ve got a Sinking Funds tracker to help you plan for life’s unfortunate events so you aren’t left in a financial panic.
*This post contains affiliate links through which I may make a commission. All thoughts and opinions are my own.
What are sinking funds?
Sinking funds are basically a super smart way to get intentional with your savings. There were so many times I have personally felt overwhelmed because I didn’t plan enough.
- Car tabs
- Car repairs
- Birthday parties
Now that I understand Sinking Funds and I use a Sinking Funds tracker, I never have those major moments of stress.
Sinking Funds for the holidays
For the last two years, at Christmas (since we’ve started sinking funds) Tom and I set aside $100 starting in August. This gives us $500 to spend on gifts, outings, and cocoa at Christmas time.
More than ever we often use our Christmas fun to find Non-Toys ideas for our kids and we look for events and activities that we can do together as a family. Join my free training on how to save $1,000 crazy fast.
Starting your Sinking Funds
For our Sinking Funds, we use a mini accordion file folder. Each section is designated for a different financial purpose. Right now we have Christmas, car maintenance, car tabs, and Destiny (our oldest daughter has prescriptions, contacts and school always comes up with some new fee). I also use this same folder to section off the money we budget for our groceries for the month.
It is so handy to have everything in one place where it is easy to keep sorted. I also like using labels to keep track of each individual fund. Labels are helpful because I can make my own and mix and match as the year changes. You can snag our FREE Sinking Funds labels here.
How to calculate Sinking Funds
- To figure out how much money you need to set aside each month, use this Sinking Funds track that makes it super simple.
- Start by creating a list of your upcoming expenses in the category column.
- Next, make a note of the amount you will be needing to save.
- After that, write down how many months you have until you are going to need this money.
- Then, finally, take the amount you need and divide by the number of months you have before you need it.
- Get your grand total of how much money you will need to save every month in order to save enough for each purchase.
Dividing by paychecks
Ideally, you will want to take each amount and divide it by the number of paychecks you have to save. So for car tabs, you need those in 3 months and you need $150. Well, in those 3 months, you should receive 6 paychecks. So for each paycheck, you will be setting aside $25.
For the larger ones, like $1,000 needed for vacation, you have a little more time. In 7 months you will have received 14 paychecks (give or take.) So you will take $1,000 divided by 14. So in 7 months, if you want to save up $1,000 for vacation, you will need to set aside $70 per paycheck.
What if you don’t have enough?
- Look at your budget, see where you can cut back. 16 Ways to Reduce Monthly Bills.
- Are there items around the house you can sell? How to Sell with Mercari
- Take advantage of these awesome side hustles.
The tough truth is, if these are all things that you need then you are going to have to find that money somehow.
Making your budget work for you
Then there are the things that you don’t need. For example the $100 birthday fund. If you are planning a party for a child, hit up Little Ceasars for some $5 pizzas, buy a cake mix from the store and bake it with your little one.
I can’t tell you the amount of joy and pride a kid is capable of feeling after helping make and decorate their own birthday cake. Now maybe you can shave that $100 back to $50…or even less.
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You’ve Got This!
Starting any new venture can be kinda scary, but I promise this one will pay off and reduce your money panic attacks! Now Sinking Funds are something I can’t imagine our family living without. I have so much confidence in it this method that I have actually started a super one for Destiny now that she has officially joined the workforce. I want to instill these good saving and budgeting techniques in her and our other kids so that they can avoid some of the serious financial downfalls tht we have had to face. I want you to avoid them too!