Sinking funds can change your life, but what sinking funds should you start?
This is where many people stumble in the beginning but this list of common sinking funds can help you determine which funds you need to make your budget work.
What are sinking funds?
Sinking funds are accounts with a purpose.
They are accounts you save into regularly for spending on expenses that are irregular expense, non-monthly expenses, unpredictable or big one time expenses.
It’s a mini savings account for an expense you know you’ll have in the future.
Sinking funds make saving for these hard to budget items strategic and stress free. You set a little bit aside each month until you hit your goal… and then you spend it!
So if you’re saving up for an event 6 months from now, you put a smaller amount aside into the sinking fund each month until the event where you spend it all. Sinking funds are designed to let you spend without stress or worry.
Common Sinking Fund Categories
Below are some of the most common and often most helpful sinking funds.
1. Car Repair Sinking Fund
Car repairs will eventually happen. Every car needs repairs at some point even if it’s just general tire rotations or oil changes. You need to be putting money into this account each month so that you are ready when your car needs repairs. Even just $20 a month into this fund can add up and help with the car repairs.
2. Car Replacement Sinking Fund
Cars don’t last forever unfortunately. This means you’ll eventually need to replace your current car. Saving up a little bit every month into a car replacement fund will make the purchase of a new car much less painful. If your current car is paid off you should be at least putting the amount of a regular car payment into your car replacement sinking fund.
3. Home Repairs Sinking Fund
Just like a car, you know your home will eventually need repairs. Most guidelines suggest you’ll have to pay 1% of the home value price on repairs each year. You can figure out this number and then divide it by twelve to get an amount to save per month for your home repairs sinking fund.
4. Water Bill Sinking Fund
Many areas have annual or quarterly water bills. When these big, irregular water bills hit it is helpful to have the money in a sinking fund ready to pay the bill. Depending on you regular bill price, divide it by the number of months until it’s due and save that amount.
5. Pet Expenses Sinking Fund
For most of us, pets are our family members. Our expensive, expensive family members. Your pet may require regular grooming, special medicines or foods, and of course regular vet care. Add in an emergency vet visit and you’ll definitely be glad you have a pet expense sinking fund. We put at least $50 a month into our pet fund which only covers a portion of these expenses but it still helps.
6. Christmas Sinking Fund
Christmas happens every year so it should not catch you by surprise and lead you into debt. Your Christmas sinking fund can be for gifts but also for things like decor, Christmas cards, foods for special dinners or anything else for the holidays. Saving for Christmas in a sinking fund makes it much less stressful around the holiday season.
7. Gifts Sinking Fund
Throughout the year we buy gifts for birthdays, weddings, holidays, baby showers, house warmings and more. While we love gifting those around us with things they will treasure, it can definitely add up and ruin the budget if we don’t plan for it! We put a little bit into our gifts sinking fund each month and it usually builds up so we can buy gifts when they are needed.
8. Clothing Sinking Fund
You might not buy clothes every month, but you will eventually need to buy clothing or shoes as items wear out. That’s why this is a great sinking fund category because you can save up a little each month and then eventually buy a higher quality item when you are ready to shop and replace items.
9. Travel Sinking Fund
Vacations are usually once or twice a year but because the high price tag, they are great sinking fund candidates. If you save just $100 a month into a travel sinking fund then you can take a $1,200 vacation each year. $100 a month doesn’t seem like much but it’s amazing what you can do with that amount.
10. Car & Life Insurance Bill Sinking Funds
Many life insurance bills and car insurance bills are due every 6 months, quarterly or yearly. We pay our car insurance every six months so we put $55 a month into a car insurance sinking fund and because our life insurance is due quarterly we put away $35 a month for that quarterly bill.
11. Medical Bills Sinking Fund
Unfortunately medical bills can be a huge financial problem in the United States. Even with good insurance you can have co-pays for appointments, shots, or medications to pay for when you do get sick or hurt. A sinking fund (or a medical FSA or HSA) can help make these irregular costs more manageable when they come along.
12. Back To School Expenses Sinking Fund
If you have kids, then you probably want a “back to school” sinking fund. You’ll need clothes and school supplies when school season rolls around. Save up a little bit each month and you’ll be ready once school runs around.
13. Yearly Renewal Sinking Funds
If you have memberships or subscriptions that renew yearly, they can be put into a yearly sinking funds count. Things like a Costco membership fee, zoo membership fee, Amazon Prime membership are all items that can wreck a monthly budget so saving up for them each month can help keep you on track.
How do you set up sinking funds?
Setting up sinking funds with Capital One 360 is very easy and super quick! If you want to see how we set up our sinking funds, you can see the whole process in the video below.
If you want to open your own Capital One 360 you can use my referral link for a $25 bonus when you open an account with at least $250.
Setting up sinking funds is a great way to keep your budget together throughout the year so the ups and downs don’t derail you.