2020 SINKING FUNDS: Setting up our Sinking Funds: Budgeting Basics
Sinking funds are important to creating a solid financial plan for your year. In this video I go over each sinking fund we are planning to use in our 2020 budget. Saving a little every month for large expenses will keep your budget on track and avoid surprise pitfalls.
Dave Ramsey explains :
What Is a Sinking Fund?
With a sinking fund, you save up a small amount each month for a certain block of time before you spend. To determine how much you save, take the total amount to be spent and divide it by the number of months or weeks you have left until you need to make the purchase.
If you want spend $1,200 on Christmas and it’s June: That leaves you about six months to save for Christmas presents. Which means you’ll start a cash envelope or sinking fund account and budget to put $200 into it every month until Christmas comes around. That way you will be spending planned and saved for money for Christmas. Yay You!!!!!
Sinking Fund vs. Emergency Fund: Think of it this way, a sinking fund is an expense you can plan for and an emergency expense is an expense you have no idea it is coming and it creates a true emergency in your life and your budget. It is very important to have both sinking funds AND an emergency fund and keep them separate!
Here are examples:
Your pet gets hit by a car and has to have surgery --Emergency Fund
Christmas presents --Sinking Fund
Your heat pump goes out in the dead of winter --Emergency Fund
Having to pay for dance recital costumes or travel ball uniforms --Sinking Fund
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Category Education