If you spend any time at all researching personal finance, it won’t be long before you come across the term “Sinking Fund”. So, what is a sinking fund, and how do you create one?
What the heck is a Sinking Fund
We all know we need an emergency savings account to cover, well, unexpected emergencies, but we all face expenses that are expected. This is where a Sinking Fund really shines.
A Sinking Fund is essentially a savings account that is meant to be spent.
When you Should Consider a Sinking Fund
-Wedding Expenses
-Education/College Expenses
-Saving to purchase a Vehicle
-Saving to buy a Home or Home Maintenance
-Beauty Products, Treatments and Services
-Christmas Shopping
-Travel
Christmas- A Perfect Occasion for a Sinking Fund
Let’s look at a perfect example. Did you know Christmas comes on the same day every year? Of course! We all do, yet financially, it takes many people by surprise every year. According to Lending Tree, 36% of Americans took on Holiday debt this Season. If this is you, you are in good company. This can easily be avoided by setting up a sinking fund in January and saving for those purchases throughout the year.
For Example, I personally budget $600 per year for Christmas expenses. I get paid bi-weekly, so I put $25 per paycheck into a savings account that is earmarked for Christmas (aka Sinking Fund). As I begin my holiday shopping, or find great deals throughout the year, it’s a simple swipe of a debit card. This is a stress free way to finance the season debt free.
How to Create a Sinking Fund
Creating a Sinking Fund is a piece of cake. If you’ve spent very much time around me, you know I’m a huge fan of my Ally online savings account. For starters it pays a higher APY (interest rate) than most other savings accounts, you can open your account online, deposits and withdrawals are a piece of cake and they make creating Sinking Funds a breeze by allowing you to create savings “buckets”.
I also use and love USAA (for military members and their families). It is a breeze to set up as many savings accounts as you would like, nickname them and create automatic transfers.
Do not pay for this service. Many credit unions have similar products, so do your research and get yourself set-up with an account that will allow you create your sinking funds for FREE!
Steps to Opening a Sinking Fund
-Open an account at a bank where you can create multiple savings accounts or “buckets”.
-Create your buckets and nickname them appropriately.
-Set up automatic transfers to make saving effortless.
-Don’t forget to include these expenses in your budget. (You can get a free budget worksheet here)
-Watch your balance grow.
-When you have expenses in these categories, swipe your debit card, guilt free.
I personally have accounts for Travel, Education, and Christmas, allowing me to continually save throughout the year. With automatic transfers, you likely won’t even notice the money leaving your account in most cases.
Free Resources
And you don’t have to do this alone. To help you put everything you’ve learned into action, I’ve created several free and intentional budgeting resources to support you at every stage of your journey. Start with the free Budget Workbook to build your first beginner budget step by step, or explore the Intentional Money Planner if you’re ready for a more structured, long-term approach. You can find all of these tools — plus recommended budgeting apps and resources — on my Resources Page, designed to help you stay consistent, organized, and confident with your money.
If you need help, or would like to work one on one with a financial coach, working with me is easy. Visit the website at JennaDowell.com.
Cheering you on,
Jenna
Jenna is the founder and owner of Elevations Design Co. She is a Floral Designer and Financial Coach helping women build solid steps to financial peace. She is a mountain girl who loves great coffee, the British Royal Family, and adventures in wild places with her husband and three dogs.
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