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Trends, ex-boyfriends, and budget-busting bills have a way of reappearing again and again.
Some cyclical events are more expensive than others, from large annual bills (auto insurance, property taxes, membership dues, and medical bills) to giving (Christmas and birthdays) and getting (everything pumpkin spice-related).
As can happen with an annual event, it can have a looming price tag too. To avoid any unnecessary discomfort, that’s expected after a rough scrubbing of a bank account, I’ve been a member of the sinking fund club for years.
What is a sinking fund?
Rachel Cruze, over at Ramsey Solutions, has the scoop,
“A sinking fund is a strategic way to save money by setting aside a little bit of money each month.
Here’s how sinking funds work: Every month, you’ll save a certain amount of money for a specific purpose to use at a later date. That way, you’re saving up small amounts over time, instead of having to come up with a big chunk of money all at once.”
In short order, it’s a warm destination for all those annual bills that come in like an icy breeze. Looming annual bills could be:
Any of the many flavors of insurance (life, auto, home, personal articles, umbrella);
Christmas or birthday gifts;
Vehicle registration and maintenance (tires, fluid change, windshield replacement);
Annual credit card fees;
Medical expenses (glasses, contacts); and
Dental expenses (mouth guard, fillings).
Instead of letting a large bill clean out a checking account with a click of a button, small and steady amounts are saved throughout the year.
I prefer to financially prep before I have a bill-busted wreck.
I use a spreadsheet to track finances. It’s free and easy, what more could a girl ask for?
In said free and easy budget, I have a tab for annual expenses, which is everything that leaves my checking account less frequently. I use last year’s bills as a guide and adjust along the way.
That’s the evergreen beauty of a budget – it tracks every penny earned and spent.
Between bills and birthdays, my annual bills are $5,156. This one sum to rule them all includes a laptop and phone replacement, car repairs, and professional memberships. So, if everything came due in one year, a hellacious year, I could cover everything.
I won’t have to sacrifice the gilded travel fund or the stout retirement fund to pay for the projected.
As a good goal digger, I fill up a sinking fund annually.
My goal was to save $1,000 this year for my sinking fund. Since it’s a high priority, bills are needy like that, I’ve already saved that sum.
This year, however, has been pricey; more expensive than prior years.
I replaced a windshield ($300), a laptop ($1000), and a driver’s license ($68). Typically, I don’t replace these items annually, more like rarely. Despite having $5,000 at one point, it’s now down to 2.
Though there is some mild discomfort, as expected with a gut cleansing, next year, I’ll have to bolster the sinking fund by adding $3,000.
I’ve been saving for a sinking fund for six years and there are many ways to fund a sinking fund.
A few of my tried and true ways include:
Accepting overtime and holiday pay;
Decluttering and selling stuff;
Churning credit card rewards;
Employing a bonus;
Utilizing gift money (Christmas, birthdays);
Using returns, refunds, and rebates; and
Cashing-in cash back apps.
Since I’m debt-free (outside of a mortgage), I can use all available money to fund a sinking fund.
I named an account devoted to bills and birthdays for motivation and inspiration.
My sinking fund is called Adulting Adventures.
I named this fund for funsies. Plus, it’s proven, with science, that naming an account does the surprising feat of giving the mortal who names it, inspiration and motivation.
Adulting Adventures is all about getting the important stuff done so I can go play with Expedition Everywhere (the travel fund).
We name hurricanes, stadiums, and dwarf planets that used to be real planets, why not a sinking fund?
A sinking fund to avoid sinking my budget.
From a submarine to a whale, some things are meant to fall beneath the waves. A sinking fund is built to go where no budget should. It’s to carry the weight of a bill so big that it would bust a budget. All to avoid stealing from other funds like travel and retirement.