Christmas is coming and so is every other holiday coming with a bus full of other expenses. The kids need new warm clothes, you have guests coming over, and the food budget should just be doubled for the rest of the year. How in the world can you combine the most expensive time of the year with the most joyful time of the year? All of this leaves most Americans starting the new year in debt and in high hopes that an emergency doesn’t happen. We can choose to skip the pity party this year and for the rest of our lives if we just start saving for all of these upcoming expenses. Let’s start this journey and save money for our upcoming expenses in our sinking fund.
What is a sinking fund?
A Sinking Fund is simply a way to account for yearly or large upcoming expenses, by saving bit size amounts of money each month. To be clear, this is just a financial term used for a separate savings account where you specifically save for special event and/or yearly expenses. Instead of getting into debt or trying to open store credit cards to save 10% this holiday season, consider saving your extra money in a “separate savings account” sinking fund.
Why do you need a sinking fund?
Christmas isn’t the only time of the year where we wished we saved more money. We also have all those little yearly expenses that slip under the cracks when we are doing our budget. Some of those yearly expenses are car registration, insurances, and store memberships like Costco or Amazon Prime. Not planning these yearly expenses can easily get you into debt and behind on paying your regular monthly bills. One way to get ahead of those bills is to create a sinking fund, this way you can save for different events or holidays like birthdays, Thanksgiving, and Christmas ahead of time. This is the secret ingredient to keeping your finances organizing and your spending under control for all of these upcoming events.
Some of my favorite sinking funds are:
- Christmas/ Black Friday Shopping
- Car Registration
- Insurance (Life, Car, Home)
- Upcoming hospital bills
- Holiday Getaways/ Vacations
How to organize and fund your sinking fund
To figure out how much you need to save for all of the upcoming holidays this season, start by listing out what you want to save for by listing your top priorities. Then create a realistic budget for your list.
Here is a simple example:
$500 Christmas$425 Christmas
- $200 Car registration
- $200 Holiday getaway
To keep these goals organized and in a safe place, you can list these upcoming goals in a separate tab in your excel budget sheet. This way you can keep track of how much has been allocated for each goal. Next, take a look at your budget and see if you can wiggle some extra money for your sinking fund or lower your short-term goals to meet these goals. At this point, you will have to decide which goals need to be modified and if your goals are unrealistic because something is going to have to give.
Christmas Sinking Fund Tips
Here are a few tips that I use to get my Christmas sinking fund on the right foot:
- List out what you want to buy during Black Friday for yourself, your home, and Christmas gifts for others.
- Save your sinking fund in a separate savings account and use cash envelopes when going out on a shopping spree.
- Research last years deals for some gift inspiration and to create a realistic budget.
- Your sinking fund is only to buy what you need and not whatever is on sale.
- Shop online in your PJs and save money on gas, but stay on budget by making a tally of how much money you have left in your sinking fund.