Sinking Funds: have you heard of this term before? What do you think it means? A Sinking Fund is an account containing money set aside to pay off an item in full. These said "items" can be long-term goals such as a vacation or wedding fund, or be based in present budgeting for bills such as property taxes, insurances and utility bills to name a few.
My best friend, Alison, has always been a Pro at Sinking Funds, so if you have any questions about these, please forward your questions directly to her (just kidding!). Yet she has been the one who has consistently taught and re-taught me about Sinking Funds so I could fully grasp my head around it. Hopefully this budgeting tool won't be as complex for you and you pick it up quickly and swiftly!
I most commonly use Sinking Funds for our vacation funding. When we set out sights on a vacation destination, we wont' just willy nilly spend money on the trip, we are intentional, persistent and consistent about our saving in order to achieve our goal (of going on said vacation).
When we went to the Philippines, it was a system of saving we created since 2019 to finally be able to go on over a one-month trip to Singapore and the Philippines in 2022. It took us 3 years of consistently saving to be able to go on our trip and this is a real life example of Sinking Funds in action.
Once you set your goal on which Sinking Funds you will use: Vacation, Wedding, Property Taxes, etc, you have to commit to putting work into doing some basic math, prepping, goal-setting and calculations. What I mean by this is that your dream vacation may cost you $10,000.00. With this information, you would sit down, review your daily budget which includes your fixed and variable expenses, and see how much per paycheck can be allocated to this $10,000.00 vacation goal. For example, one could have $500.00 that they could allocated per paycheck. $10,000.00 divided by $500.00 = 20 paychecks. You'd then go to a calendar a schedule out what date 20 paychecks will bring you to and that will be the end goal and deadline for saving $10,000.00 for your dream vacation.
Still have questions? Feel free to reach out to me at firstname.lastname@example.org and I will do my best to answer your questions on Sinking Funds while preparing a few great online resources and tools that can be used on your Sinking Fund journey.
Have a recommendation for future personal finance topics? Feel free to reach out to me through the above email and I'd love to learn what you have in mind for a potential topic for week's following! Signed, Filipina Budget Girl.