This week for Finance Friday we’re going to chat about Sinking Funds. These are simply a method of saving the money you need for once-off, annual or irregular spending events. To be honest, I’ve always just referred to these as Saving Pots/Funds, but it’s a good idea to use the term Sinking Funds so you can differentiate them from other big saving funds such as House Deposit or Emergency Fund.
The idea with Sinking Funds is that you assess what you need to save for and work out the total amount needed. You can use multiple accounts or something like Revolut vaults for each Sinking Fund or you can save in one account and track the amounts separately. I use Revolut vaults for mine.
When it comes to actually saving the amounts, you can choose to pay a regular amount to each, each month, ensuring you have the money available as you need it. Or you can choose to fill up each Sinking Fund over a specified number of months. How you choose to manage your funds is up to you – don’t let anyone that isn’t living your exact life tell you there’s a right or a wrong way! There are pros and cons to each way, just a matter of assessing which would work best for you.
The Sinking Funds I currently have are:
🚗 Car (Insurance, Service, Tax, NCT)
🏠 House (Household items, Insurance, Bins)
🌞 Holidays (Remember them?!)
🎄 Christmas (Gifts, Food, Decorations)
🎈 Birthdays (Gifts)
🎁 Occasions (Nights out, gifts)
⚕ Medical (Lenses, Prescriptions)
📱 Phone (For the day my phone gives up on me!)
Do you have Sinking Funds? Or do you need to know anything more about them?