Have you ever heard of ‘Sinking Funds‘? If not, then you may be wondering what they are. Your next question may be whether you need them.
Sinking funds are savings for expenses you expect to encounter, but don’t know when. They may also cover infrequent events that don’t occur each pay period, such as Easter.
When setting up your Sinking Funds, you have various choices:
- You may decide to use separate bank accounts for each sinking fund.
- You may keep the money in jars at home. This isn’t the safest idea for anything other than small sums of money.
- You may want to lump all your savings together in one place. We do this and keep track of what money belongs to what fund/purpose on a spreadsheet, but a notebook would do.
What you decide to save for will vary from what we or any other person saves for. Certain things will be the same, for example, if you also buy gifts for people at Christmas. You may have children’s costs to consider, whereas we don’t. The key is to think of all the irregular costs that catch you out and destroy your regular monthly budget. Try to include those things.
Fun Fact (from Wikipedia):
Our Sinking Funds have saved our skin and our budget many a time! Here’s what we put money by for each month:
- Home insurance premium (buying it yearly works out cheaper than monthly premiums).
- Car tax (buying it yearly works out cheaper than paying for it more frequently).
- Car insurance premium (buying it yearly works out cheaper than monthly premiums).
- Breakdown cover.
- M.O.T. & servicing.
- Sight tests every two years.
- Boiler service.
- Six-monthly dental checks.
- Unexpected dental bills.
- Car repairs, parts & tyres.
- Gifts (birthdays and Christmas gifts for family. We buy for each other out of our personal allowances).
- House renovations and items.