Spring Cleaning the Finances: Sinking Funds
Every year, so many of us look towards spring to tidy up and get our house in order. One thing to not overlook is getting our financial house in order, too. Now, is the perfect time to check in on your yearly or quarterly goals and see where you need to adjust.
It’s also a great time to take a look at the budget and see what’s working and what’s not. For me, I realized in the first quarter that my sinking funds weren’t really aligned with my goals so now I’m re-adjusting. Here’s the deets on my sinking funds and why you might want to set up your own as well.
Why sinking funds?
Sinking funds are an excellent way to save for expenses that you know are happening in the future so you are not left scrambling once the bill comes. A simple example of this is car insurance, I pay mine every 6 months so instead of waiting to pay the lump sum every June and January, I can add to the sinking fund monthly so it’s not suck a huge hit to my budget when the time comes.
You can use sinking funds not only for bills but goals for fun things like travel. For me, I like to think of it as multiple holding places for my money. Following the concept that every dollar has a job, I don’t like to leave money in my “bills” account that actually won’t go to bills and the money doesn’t belong in my “fun money” because I need it to serve a bigger purpose. By moving it to its own designated location and aligning it with a goal, I feel like I am more dedicated to staying on track with my budget.
Start saving for ALL of the things!
How to set up sinking funds?
There’s so many ways to set up sinking funds so I definitely encourage you to research different banks and figure out what works best for you. I know some really love Ally Bank, I’ve heard Bank of America has tools that might be helpful to sinking funds but for me, I really enjoy using Capital One.
My favorite thing about Capital One is that you can set up so many accounts with ease and you are able to give them names so it’s easy to know what is what. I like having multiple accounts to see things as clearly as possibly. I know some wouldn’t want to have like 10 accounts, but that’s why it’s so great that personal finance is personal, you can make the best decisions for yourself.
My updated sinking funds:
Tithes - Even though I treat tithes like a bill, I still like to lump it with my sinking funds, It’s cleaner to me that way. I like that I can put it in it’s own account and set up an auto-payment with my church. I never have to worry about spending money that I intended to give back.
Self-Care & Maintenance - If you don’t treat self-care like a bill already, I highly suggest you reconsider it. There’s plenty of things that are free that you can do for self-care but there’s also things that can be pricey. One example is I consider my monthly facial, part of my self-care routine. It’s not negotiable (I told y'all, I was bougie). If you are like me and not having your hair done, stresses you out, go ahead and budget for it. That also goes for nails, brows, waxes, whatever helps you feel like you and good about yourself.
Style and Beauty: I used to have this lumped together with Self-Care and Maintenance but I realized I was always spending the allotted money towards my self-care routine. It’s becoming more important to me so it needs its own category. Thanks to #TeamPeloton, I’m starting to notice that I am sizing out of some of my clothes so I need to make sure that there’s a designated account with money to assign with the changes.
Sorority Fund: I’ve been a proud member of Alpha Kappa Alpha Sorority, Inc. for ten years. Through undergrad, being general, and a graduate member one consistent thing is that it’s always going to cost money to serve. So, if you know dues are due in January, don’t start asking folks to help pay them as a Christmas gift. Be prepared for them! Saving a little bit each check and placing it in a sinking fund will help.
Dream-House: I’ve made it no secret that I want to be a home-owner. This account is dedicated to saving money to have my house like I envision it in my dreams. I want to have a house that celebrates Black Excellence, so I’m saving money to purchase art from some of my favorite painters and illustrators. In my dreams, there’s always a dog but dogs come with a price tag. It makes sense to me to put a little away each check for one.
Gift Giving: Giving is one of my love languages. I like to be able to send a Soror flowers if she had a death in the family or send a friend a book that I came across that I know they will love. I want to be able to make those decisions without worrying so much about it will affect my budget. Even if you aren’t big on gift giving, you might find a sinking fund helpful for Christmas and Birthday shopping.
Travel: When the outside opens up (for real open up, not this current stuff), I want to be ready. Dassit.
Car: This is pretty straight forward - car insurance, but also throwing a little money towards buying a new car when needed. I absolutely love my car and want Ferb to last forever but realistically, it’s 11 years old.
Debt: For someone on a debt-free journey it might sound a bit weird to have a sinking fund dedicated for debt. My last two debts are my Peloton bike and my student loans. Right now, I feel most comfortable saving money to go towards paying off those debts rather than just paying towards them each month. For my Peloton, I don’t want to rush and pay it off and my credit score drops right when I want to buy a house. And then with student loans, I’m waiting to see what President Biden does about Student Loan forgiveness. I know to some that’s a controversial view. But hey, don’t you love that personal finance is personal!
That’s a look at my sinking funds. I hope it may inspire you to take a look and see if they could be helpful for your budget. If you let me know in the comments or over on Instagram what you plan on using sinking funds for.