On average, Americans are only able to save around 3% of their monthly income. Given the increasing prices of essential goods and services, it’s alarming to know that many are still struggling to save more. That said, financial experts recommend starting sinking funds. By definition, these are line items in a budget wherein a person saves money for vital future expenses.
To make things clearer, a sinking fund is different from both an emergency fund and a savings account. It is more specific. In other words, you know what it is for when to use it, and how much to put in it, whether it’s for a home down payment or kids’ school fees.
You’d also need to review your monthly budget and income, make the adjustments, and see the amount you can set aside for sinking funds. This kind of budgeting and saving system will work with any income. You need to plan it well. So, let’s now explore some basic categories of sinking funds that you should start.
Do you have a hard time paying your monthly dues to your mortgage loan officer? Or, are you constantly getting surprised with sudden home repairs or maintenance needs? Then this is the perfect time to set these as sinking funds. Late mortgage payments are not good for your record, and as much as you hate it, stuff breaks as well.
Furthermore, you’d also want to save up for serious possible problems such as your central air going out or your water heater flooding your basement. Other things that your home sinking fund can cover include HOA fees, homeowner’s taxes, insurance, and so on.
Other huge expenses that many individuals face are car replacement or repairs. Such things can really sneak up on you and force you to shell out money. If you’re looking for a car replacement, save up for a better or upgraded vehicle than your current one. As for repairs, you can sock away at least $50 for things like tire replacements or oil changes.
So unless you’re an experienced car mechanic, you should consider a vehicle sinking fund. Other items covered are inspections, tune-ups, license renewal, and new car battery or seats.
Medical bills are undeniably one of the biggest expenses that people face in their lives, which often even makes it hard to save money. Even a person with great health insurance can still be financially drained if they suffer from serious medical problems. You may choose to use a Health Savings Account (HSA) or a medical Flexible Spending Account (FSA) as your sinking fund. Both are pre-tax contributions.
On the other hand, you always have the freedom to build your own medical fund. Just make sure to consider all anticipated health concerns based on your age or medical history. You can start saving $40 a month for your medical sinking fund.
While most insurance is just annual bills, they are still huge expenses that require disciplined saving methods. You can start a sinking fund for your liability insurance, business insurance, life insurance, and other coverage you have.
Determine your total bill for the year, then set aside an amount every month base on that. Some insurance providers offer deals for clients who choose to pay bi-yearly or monthly. Check this with your provider and think through if this will help you save money more easily.
This category is very individual and will depend on what occasions you want to save money for gifts. Most people opt to have a separate sinking fund for Christmas, including gifts, food, greeting cards, and other expenses. You can then set another gift sinking fund for other occasions such as Valentine’s Day, Father’s Day, Mother’s Day, and so on.
To start, you can set aside $20 from your monthly income for your Christmas fund, while $15 for the gift sinking fund of other occasions. In particular, your savings can be used for things such as holiday cards, decorations, parties, and outfits or costumes.
Sinking funds are beneficial for anyone, whether you’re a saver or a spender. The list above are just examples, and you can get as specific as you like depending on your needs and wants. By saving in a strategic way such as this, you are expenses won’t be much of stress; they can actually be fun. Don’t let those future big purchases or expenses sink you, and start saving strategically right now!