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Sinking Funds

May 31st, 2017 at 03:55 am

I'm on FB group where there has been a lot of discussion about sinking funds. The definition they gave is 'saving a small amount of money each month for a certain amount of time before you make a purchase'. That definition is true, but a bit vague since it doesn't really explain the types of things you use sinking funds for.

I have used sinking funds (sometimes I call them escrow funds) for car registrations, Christmas, auto insurance for a very long time. I established these pretty early on. I wanted to get a discount for paying insurance semi annually. The only way to make sure I had the funds was to save for it. A little each month.

Specifically, I save $50 a month for Christmas. I guess I do have a birthday fund now too. I save $42 a month in that one. I also save $152 a month for car registrations, auto insurance and renters insurance.

Now that we use YNAB, I have quite a few more sinking funds. I don't always add to them all every month. For example, I know that my daughter has a fair share for band expenses due in the fall when marching season starts. It's usually around $300. I could save $25 a month, but that feels tedious to do all year long. So for the last couple months, I have been just putting various amounts in knowing the goal is to have all the money by August. I actually need to make a $75 payment to them tomorrow. And I do have that.

I established an eye care fund, as nearly all of us are due (over due actually) for eye exams and will need glasses. And I also established a cell phone replacement category. So far I have funded it well enough to purchase two new phones. My older daughter and I are holding out even longer with phones we bought 3 years ago. My does randomly turn off and on by itself sometimes, but she hasn't had any problems with hers.

Do you have sinking funds? What do you use yours for?

10 Responses to “Sinking Funds”

  1. Debt-free by Thir-ty Says:

    I haven't been able to get that far. I definitely know the value of them. We just haven't been able to save anything towards them since I'm trying to focus on debt payoff. I'd like to have them for Christmas, car taxes, and car insurance first. We sort of do them for Christmas and property taxes in that I start putting aside the money in large sums a month or two before the event, but I'd like to eventually get to yearlong smaller contributions.

  2. monkeymama Says:

    I just take the annual stuff and divide by 12. (When I say annual, I mean for the whole year, but generally anything that is not a monthly bill). I don't get too detailed about it. I have always always done this. I am guessing this is one of those "imperative to stay out of debt" things, unless you just have a LOT of income or windfalls. My income was too low, starting out, to ignore these things.

    20 years ago my sinking funds were just for auto and rental insurance. Didn't have a lot of expenses.

    These days my sinking funds are for property taxes, insurance (home, life, disability, auto x 2) vacation, car repairs, dentist, and "other". Other is misc. spending that just doesn't happen every month.

  3. monkeymama Says:

    P.S. I use "other" for stuff like car registration and school lunches (which I fund a couple of times per year).

  4. scottish girl Says:

    I'm trying to start this. Right now I save 20 each month for Christmas, and I've just started 20 for upcoming school/nursery expenses. I haven't lived through both kids at school and nursery so I really don't know how much I'll need, but it's something... I guess next year I'll know better.

  5. rob62521 Says:

    We have a few...Christmas, vacation, and an account we call home improvement for big stuff. We had a new roof put on a year ago and paid for it cash. We are now saving for a new driveway.

  6. CB in the City Says:

    I save $275 a month to pay property taxes, insurance, and to contribute to a nest egg for my gap year. Anything additional I can save in the regular budget goes to the big expenses like dentist, vet, travel, Christmas.

  7. Bluebird Says:

    I've always used a form of this to some degree, but I read Mary Hunt's book in the mid 90's and she called it a Freedom account, which I referred to them for 10+ years. Since then, I call them "reserves" for particular items. I have some in our savings account and some in checking. I probably have about 15 reserves for different items.

  8. creditcardfree Says:

    @bluebird, that is exactly where I learned about them originally...Mary Hunt and her Cheapskate Monthly Money Makeover book. I forgot the word she used! Thanks for the reminder.

    @CB, nice plan. When we owned a home that didn't require escrow we saved for our own property taxes, too.

  9. creditcardfree Says:

    @MonkeyMama, I agree I think it is one of those imperative habits to establish to stay out of debt. Smile
    @DebtfreeThirty,it is a skill that is helpful to understand how much money is really yours each month to put towards debt or savings. If you are saving year round for the items that are not regular, it basically puts it into your budget to see how much those irregular expenses are part of your budget. I've been in the save up fast for the glasses and the tuition bill, so I get that part too. Definitely start with one or two categories first. Once those are habits add the others in.

  10. frugaltexan75 Says:

    I have a ton of sinking funds. Smile I also first learned about the idea via Mary Hunt. I subscribed to their forums for several years before I found YNAB.

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