For those who might be unfamiliar with what a sinking fund is, it is essentially setting aside money for future known expenses. Christmas is a prime example. We all know it comes in December and by setting aside funds each week/month, it no longer becomes a budget buster. Sounds simple enough, but yet Hubby and I still struggle with doing this.
We are now going into our eighth month of digging out of debt and getting our finances in order. While I am pleased to say that we haven’t taken on a single dime of extra debt, this journey hasn’t been without its struggles. I wish budgeting could be a set it and forget it kind of thing, but at least for us, it isn’t! I have come to realize that we have a lot of irregular expenses.
Our intention has always been to get sinking funds in place. Try as we have, we have not done a good job in this area of our budgeting. We do have automatic savings set up, but it never seems to fail that we are always pulling the money to cover one of these irregular expenses. I feel like this fund is always revolving! Put money in, take money out…and this is why I often think of this account as a revolving sinking fund.
The problem, however, is that we don’t always have enough in our sinking fund to cover the expense and as a result, often need to pull more money from our check. My fear is that there will be a month that no matter how hard we try, we won’t have the ability to cover one of these endless bills. And this is why we need to change how we are handling our revolving sinking fund!
We made it one of our goals for August to increase our sinking fund savings from $50/week to $75/week. I have this setup on auto transfer and view it as a bill we pay to ourselves. The additional $100 per month should cover what we’ve needed to add from our paychecks. While I know that this is what the money is set aside for, I still cringe every time we need to use it. Wierd, I know! I think much of this stems from not ever having money allocated for irregular expenses to begin with. Wasn’t that always the purpose of a credit card? Nope, not anymore!
As I mentioned in yesterday’s post, we are also going to start a “cash sinking fund” for items I like to pay in person. Yes, I do realize I could combine this with our regular sinking fund, but I like the idea of having some of this money in cash. Again, I know, weird! I kind of think of this as an extension to our envelope system. Plus it will challenge me a bit as my intention is to pull this money from what I earn at my part time job.
Time will tell how this all works out. No doubt I am probably making it harder than it is, but hey, I view it as all part of the learning curve! Hmm, does that then make me a slow learner? When it comes to finances, obviously I still have much to learn, so I guess so!
How do you handle sinking funds and how do you keep them separate from your regular finances? I’d love to hear your ideas!