Sinking funds need to be a big part of your budget. My budget is a giant sinking fund, continue reading and find out why.
Sinking funds are a big part of any budget that has accounted for all the important expenses. My budget is a giant sinking fund. Many of the expenses are sinking funds.
Sinking Funds and your budget
Does your budget have any sinking funds? My budget is a giant sinking fund. Here is why, when I build my budget I budget for those expenses that I know I will pay during the year but do not pay every week.
My budget is built on an annual basis. Many other financial experts will tell you to build your budget monthly. While that works short term what happens to those expenses that get paid once per year.
Furthermore the case can be made that every expense is a sinking fund expense.
Sinking fund defined
A sinking fund is a fund where money has been put aside to pay for an expense. If you know you have an expense coming due then you put money aside to make the payment when it is due.
Consistently whipping out that credit card to make the payment will not work. This type of habit will keep you in debt.
To get out of that nasty habit sinking funds will be the answer.
My budget is a Giant sinking fund
As a rule I build my budget every year in December for the coming year. For the most part my budget is boring. The same expenses every month. I call them expenses because I know at some point during the year I will need to pay that bill.
Once I have built that annual budget every month I then take those expenses and use them for the monthly budget.
Our monthly budget includes the four walls, food, shelter, clothing and transportation.
Beyond that all the other expenses are mini sinking funds.
Why use sinking funds
Sinking funds will provide you with the security of knowing that you have an expense covered and a routine expense does not become an emergency because it is not. A known expense is never an emergency. This is something you should have planned for.
Using sinking funds assists you in planning your expenses. Planning your expenses will also help you reduce your budget where necessary.
My budget the Giant Sinking Fund
Included in my budget are many different periodic expenses, but I have two favorite sinking funds!
Our vacation fund and our Christmas fund. These are our favorites because we enjoy taking a nice vacation and for Christmas we gather together as a family.
Knowing we have the money set aside gives us peace of mind. We have set a budget ahead of time, then every month we put aside the required amounts and let it build until we need it.
How would it feel to go on vacation and not have to be concerned with finding money in the budget to go?
Everything is so much more enjoyable.
Out Christmas fund is for gifts and this makes Christmas a nonevent as far as gifts go. We have a budget and we have set money aside all year so it just happens.
Other sinking funds
Any expense that is not paid monthly must be allocated to a sinking fund. This will give you peace of mind when the bill comes due.
A funny story
Our life insurance and car insurance as well as vehicle registration are due in May. All year long we will put money aside to pay these expenses. Like clockwork the bills would come in and then we would pay the bills. While it was nice to have the money available to pay these bills with no real effort I always found it depressing.
The funds would build and we would have this nice balance in our account. The bill would come in and the payments would go out. Then the account balance would decline. I no longer felt comfortable with the reduced balance and actually felt poor.
The reality is that we planned and had the money for the bill so no reason to feel depressed.
I just had to sit myself down and come to the reality that having the money and planning ahead is much better than not having the money and trying to come up with it.
