Updated: Feb 2
What is a Sinking Fund and Why should I use them?
A sinking fund is a type of saving method that splits to cost of an item or occasion over time. It's a way of saving for occasions such as birthdays or Christmas over the year. Using sinking funds can be beneficial if you know there are going to be things you need to splash out on throughout the year but don't want to take up one entire pay check doing so. While some tend to only use sinking funds for recurring expenses, I believe you can use them for anything you want. After all, it's just a savings method. You can use cash envelopes or digital money pots / savings accounts as your Sinking Funds depending on your preference.
How do they work?
Given the current time of the year.. (it's Nov 22nd at the time of writing) let's focus on Christmas. Now there's no point trying to save for this Christmas but why not start saving for Christmas 2021 now! I know, I know, it seems SUPER early to be looking a next Christmas but if we start now.. we can save slowly over the year rather than the usual mad panic of buying things in late Nov / early Dec out of your November pay check..
Sinking Funds have a little formula which is super easy to work out:
Amount Needed ÷ Time Until Need = Monthly Savings
(I usually work it out in months as that is when I get paid, but you can work it out weekly, 4 weekly, however floats your boat!)
£500 for Christmas Presents and Food ÷ 11 Paydays between Jan & Nov 2021 = £45.45 per payday into Sinking Fund
Doesn't saving £45 a month sound a LOT nicer than trying to divvy up your November pay slip? The great thing is, you can use this for anything..
Why not get ready for Black Friday! 6 Reasons Why Black Friday 2021 is Already in My Diary
Sinking Fund Examples:
Treat Yourself Fund
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