Do you have a sinking fund? Do you even know what a sinking fund is? I had no idea what it was until recently but it can actually make a difference in your financial situation, especially if you are focusing on living more frugally and within a budget.
What is a sinking fund?
A sinking fund is money you save for things you know you want or need in the near future. These could be things like a kitchen renovation or a big family holiday. It is not the same thing as your emergency fund, with this fund you know exactly what you are saving and exactly how much you need.
A sinking fund also reduces the need for debt. If you have a sinking fund set up for your kitchen renovation, you will be able to redo the kitchen exactly the way you want it, without worrying about where you will get the money. If you save for a big holiday, you will be able to really enjoy the holiday without having to worry about how much you spend.
Setting up a Sinking Fund
When you are setting up your fund create a separate account dedicated to what you are saving towards. I know Capitec and FNB allow you to set up “sub” accounts that you can use as savings accounts. Make sure you name the account appropriately, for example “New Kitchen” or “Holiday to Kenya”, this helps you to stay focused on your goal. It is also important to set a specific and realistic amount you want to save. Write the amount down and make it one of your financial goals.
Once you know how much you need, set a time frame to achieve it and then set a reasonable amount you want to save each month. Check your budget and see what you can afford to put into the sinking fund each month. When you have the amount you want to save, make sure you add it to your budget so that you save the money each month.
Saving is not always easy which is why adding it to your budget is so important. It is much easier to commit to a saving when you know you can afford it and know exactly why you are saving it. Remember, the reward for your saving will be the holiday or kitchen renovation.
Budgeting allows you to take full control of your money and plan for the things you really want. Start building a fund one so that you can finally get the renovations done or go on that dream holiday.
Do you have a sinking fund?
30 Responses
I love this idea! Definitely going to look into starting a sinking fund for us!
I have a few sinking funds – the most draining being D’s varsity fees saving acct. Only a other year to go!
Thanks for this wonderful Piece!
I am starting a sinking fund straight away..no more procrastination.
Planning is key!
Thanks so much for reminding us about saving for the raining day or for a project!
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We do have one, it is such a good idea to have a sinking fund it takes a lot of the stress out of things you know you will need to spend out on if you have been saving already
We have started trying to put money aside every month as we would love a family holiday next year. It is such an important thing to do.
I have multiple sinking funds for different things we have coming up like holidays, weddings, home stuff etc and it helps me save bits over time and not suddenly need a lot in one go x
I’ve got an emergency fund set up and a small sinking fund. I’m trying to grow it a little at a time as there isn’t much coming in at the moment.
I for sure need to start a sinking fund. I haven’t had the chance to start one because we just bought a house and things keeping popping up with it, but I’ll definitely get into starting my sinking fund soon.
What a great idea! Thanks for sharing this.
I really need to start a sinking fund and this was really helpful!
I like the idea of this fund. It is nice to portion out savings for different things, from things we need to things we want.
Ooh I need to do this and before reading this blog post I have never heard of a sinking fund before but it sounds really useful for stuff that is needed soon
Laura x
A sinking fund is necessary. In my financial practice, this is a fund that we always advise clients to have. Excellent post.
Actually I don’t have a sinking fund but I am planning on setting 10% of my salary every month on the side.
I’ve never heard of a sinking fund, but now that I know what it is, I do agree it’s important to have!
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Sinking Fund does make sense after reading your post. I don’t have one set up at the moment but will be for our next holiday as I want to be debt free
Yes, but I feel like I always need bonus sinking funds. Like: car repairs, plumbing issues, or washer malfunction! Unfortunately my holiday sinking fund and emergency funds go to those. Maybe I should set up an auto maintenance and a home maintenance sinking fund.
I actually do! I usually put a small amount like $10-$20 away each pay check for Christmas, doesn’t seem like much but it adds up at the end of the year, I also try to tuck a little away into our savings and a trip fund.
That sinking fund sounds like a great idea! I will have to start one soon!
I have a I have a few sinking funds, it helps alot!
I was not familiar with the term prior to reading this. But I am familiar with the concept. This is a great idea. Budgeting to avoid debt is very smart if you can manage it.
I have multiple sinking funds as I seperate them out for different things we’re saving for such as a holiday, home renovation, saving for our cats etc. It makes such a difference to be able to see how much you have saved for things x
I have multiple sinking funds as I separate them out for different things we’re saving for such as a holiday, home renovation, saving for our cats etc. It makes such a difference to be able to see how much you have saved for things x
hhmmmm, so that’s how its called? Sinking fund? hahhaha, never knew so thanks for sharing!
I am not familiar with a sinking fund. It sounds like a great idea and definitely a must. I could really use this for a lot of things coming up.
I guess I can say that we have a sinking fund, although we don’t call it that.
I had never heard about that name, but it seems we have them for a few things
I try to have a saving fund but it gets eaten up with the money I need. I put money out but then it I have to use it in the months that I don’t have a lot of money.
Love this idea and would love to start one. I would love to take the kids to Disneyland once the pandemic situation is over. Thank you for sharing this.
This is a really great idea – especially if you can set up a Sinking Fund directly with your bank and name it appropriately. And no, I hadn’t heard of it. Thanks for the tip.