Sinking Funds – Are You Prepared For Irregular Expenses?
December 22, 2009 | Posted by Brad Chaffee 
Do you have sinking funds in place to cover irregular expenses? If not, you should. For one, it makes the monthly budgeting process so much easier, and secondly, it is always a great idea to be prepared for quarterly or bi-annual bills.
We pay our car insurance every six months—so for us, it is a lot easier to just pay for the whole six months—plus we get a discount for doing so. Discounts are always nice, but it also gives us one less bill to worry about during that time.
The Budget
Ever worked on your budget, thought it was perfect, only to find out you forgot about something? We have, and before we got really good at predicting upcoming expenses, and started utilizing sinking funds, forgetting something in the budget caused us to become frustrated with the budgeting process.
It is also worth noting that it is much easier on the monthly income to have a separate sinking fund in place, rather than having to cover the complete expense all in one month.
The Convenience
The convenience of having that money set aside is priceless because it gives you peace of mind. We have found that having this money set aside in a sinking fund causes us to worry a lot less. Stress related to money is a pretty common occurrence, and irregular expenses can produce high levels of stress if you are not prepared for them.
As noted above, it is wonderful to have one less bill to worry about each month.
Start A Sinking Fund Today!
Starting your sinking fund is really quite easy, it’s certainly worth the added preparation.
To get started make a list of ALL your irregular expenses—that you know about. I usually list mine in the order that they are due for obvious reasons.
Next make a note of how often these bills are due. Once you have the total that will be due, and the time you have to fund that expense figured out—the rest is pretty easy.
Monthly Savings Formula
Total bill divided by amount due = savings required each month to have the total by the time it is due.
Ex. Bill is $300 due every six months.
$300 divided by 6 = $50
Putting aside $50 each month is MUCH EASIER than coming up with the full $300 when it is due.
We generally use our local bank’s savings account for sinking funds, while using ING Direct for our emergency fund. (Keep emergency fund and sinking fund separate.)
Follow this formula for each irregular expense you have, and I bet you will find that your life, as well as managing your budget becomes much easier.
Brad Chaffee is the Enemy of Debt, and a regular contributor here at the Self Reliance Exchange. Learn more about Brad by reading his bio. You may also contact him here.
Categories: personal finance | 
Tags: financial preparation, irregular expenses, self reliance, sinking funds | 
2 Comments »
I am a sinking fund maniac! We have around 12 funds set up for various things like home improvement, kid’s activities, vacation, etc. It’s great to have the money there when you need it!
That is awesome Dustin! sorry I missed this comment man! You are definitely doing the right thing and I am sure you have already experienced the benefits of doing it that way. Otherwise you probably would have quit doing it.