4 Ways To Incorporate Sinking Funds Into Your Budget

The classic use of sinking funds is adding the same amount each pay check until you reach the goal. But what if I told you this isn’t the only way to use them. Sinking funds, like all budgeting tools, are meant to be adapted to fit you and your personal budget. It’s not a one size fits all.

Great news for people with a variable income!!

Now you might be a little confused and have no idea where to begin or how to change the concept. So let me show you 4 different ways you can incorporate sinking funds into your budget…

Put money aside each month to cover annual expenses

Ok so this is a classic sinking fund use. Take something, like your car insurance bill, divide the total cost by the amount of months you have until the expense. That is the amount you need to put aside each month. Switching from monthly to annual payments will often save you a decent amount of pennies. However, it’s very easy to forget about these expenses month to month and then go into panic mode when the payment comes out of your account. Save yourself the financial anxiety and set up a monthly amount to send to this sinking fund. When the time to pay the bill rolls round you’ll have the amount ready to go in cash. This can take a few months (maybe a year) to get into the swing of as it’s often hard to break out of a monthly subscription system but trust me, making the switch will benefit you in the long run.

Use it to save for upcoming trips

Going on holiday next year? Maybe it’s currently just an idea or maybe you’ve put the deposit down already. Why not create a sinking fund for the trip? Grab a pen & paper and estimate how much you think you’ll need for the trip – and estimate everything! I’m not just talking about the big things (accommodation, flights, food, the basics) but also all the added extras (those spenny airport snacks, that cheeky g&t on the flight and you can’t forget about actually getting to and from the airport!!). Once you have a REALISTIC figure of how much you need, you have your goal! Now you simply need to keep adding money to the account/pot/envelope, wherever you plan to keep it (TOP TIP: separate it from your other money to prevent those sneaky withdrawals!!) until you hit your goal!

You can incorporate the classic – work out how many pay checks between setting the goal and needing the money by and dividing the total by this number and putting that amount away each pay day. Or you could simply add to it when you have and/or make extra money. Or do a combination of both.

A pot of money you continuously add to for those purchases that come up here and there

Like gifts for example or treating yourself. You could set up a separate pot – maybe put a bit of money in to begin with and give yourself a head start – and add to it as and when. For things like gifts you might have one month where it seems to be everyone and the dogs birthday so you decide to intentionally allocate money to the pot. But next month you have none so you only add a tenner just incase. You get the idea. I use this method for my f*ck it fund! Which is a pot of money I like to have access to at all times for those moments where i just say f*ck it and do it, even if it’s not in the budget at that moment in time. The last big moment I had when I used this fund was that time me and my two oldest friends spontaneously decided to get matching tattoos.

To prepare for upcoming events

Like with the trip sinking fund, if you can already foresee an event that is going to cost you a significant (or any) amount of money, set up the sinking fund as soon as. I’m thinking a wedding, hen party, friends big birthday – you get the idea. If this is just an idea right now, give yourself a good foundation by putting something aside in a pot. But if the plans are already in place and you have an idea of how much it will set you back, get more organised with how much you’ll need to add to the pot each month to cover yourself.

That’s 4 ways to use sinking funds in your budget. Do you use sinking funds already? Do you use any of these methods?