How to Save More Money with Sinking Funds

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**This post updated on February 21st, 2019

Organizing your money is right up there with a kick in the face with a golf shoe. No one has the time or even the desire to do such a crazy thing. But, what if I were to explain to you not only how easy it is, but also how it creates success within your financial plan. There are two words that will make your money and your life so much easier. Are you ready for this? SINKING FUNDS. Wow! Now don’t you feel better already?

What is a sinking fund?

A sinking fund is a really fancy shmancy term for a savings account that is earmarked for something you are saving up for. How many of you have gone on vacation and the vacation follows you home in the form of payments? How many of you go into panic mode every Friday after Thanksgiving because you just realized Christmas, or any holiday for that matter, is coming up? Have you ever wondered what is was like to have cash sitting around for the one thing you completely forgot to budget for? We have all been there and it reminds us again how much we can’t stand managing our money!

The joy of a week-long San Diego vacation comes to a screeching halt when you realize you are going to be paying for it….and paying for it….and paying for it. Christmas starts to rob money from your mortgage and utility payments, and then has the nerve to steal the joy out of the season. You start to tell your kids to stop making so many friends in school because you can’t stand the thought of buying another birthday gift. The soccer coach calls to tell you how awesome your kid is at soccer….and that awesomeness comes with a $2,500 price tag due in full next week for an upcoming travel game. Oh, and the hot girl calls and wants to meet up with you in Vegas but you don’t know how much of that general savings account is earmarked for hot girls and Vegas. Sinking Funds will help you with all of these feelings.

We have 10 sinking funds! Each fund has a “nickname” and here are a few of them to give you and idea:

  • Vacation Fund
  • Christmas Fund
  • House Repair Fund
  • Insurance Fund
  • Tax Fund
  • New Car Fund
  • I don’t know what it is but I want it Fund
  • Emergency Fund

Open Your Sinking Funds Today

The #1 place to open a sinking fund is at CIT Bank. They offer a low minimum of $100 and a high interest rate of 1.55%. This means that your money will add up fast!

Open An Account

Every pay period, we deposit a little bit of money into each one. We may deposit $100/month into the Christmas Fund and $50/month into the House Repair Fund. Every Christmas we have $1,200 to start off with and every time I need to go out and get this or that for the house, I don’t have to destroy my budget that I’ve worked so hard on. These accounts start to grow and over time you start to laugh because you realize that you actually have that one thing other people seem to always have. You have pictures of Jackson, Grant, and good ol’ Ben Franklin hanging out together in your sinking funds! Those things you once dreaded are now what you wanted them to be – FUN.

So Peach, where do you get these sweet sounding sinking funds? I would highly recommend using CIT Bank. They offer higher interest rates versus a traditional bank. When you setup your account, you can link them to your checking account that you use everyday. For example, if you use a credit union in your neighborhood, you can link your credit union to your new savings account and then set up automatic transfers to build up your sinking fund. If you have direct deposit through your employer, you can set that up and have your sinking fund grow straight out of your paycheck! It is so easy that I truly believe a cave man could actually do it.

sinking fundsNow, what if you need to get money out of your sinking funds.  There are 2 ways to do so:

  1. Transfer from your sinking fund to your everyday checking account – takes 2 business days via the Automatic Clearing House referred to as an ACH Transfer
  2. You can set up a checking account at the online bank and INSTANTLY transfer the money from your sinking fund to your online checking account and have check writing privileges or ATM withdrawals

There are a few things I will tell you so you don’t get mad at me. The first thing is savings accounts charge you a fee if you pull money out the account more than 6 times in a month. However, if you had 10 sinking funds, this means you can pull money up to 6 times a month from each account. I suggest that at Christmas time, you transfer all of your Christmas money to your Checking account one time and then you can avoid the fee. Also, when you transfer money from your everyday checking account at your local bank or credit union, it will take 2 business days to get to the online bank. This doesn’t mean it is “lost” for those 2 days, it just doesn’t actually leave your neighborhood bank and enter your sinking fund until 2 business days after you hit submit. Lastly, when you send money from your neighborhood bank to the online bank, your deposits are not available for withdrawal until 5 business days later.

I once felt like we had a pot of money that we just called savings. This money had a little emergency fund in it, a little vacation savings in it, and a teeny tiny bit of Christmas in it. It was disorganized and we couldn’t tell you how much of the pot was for each of the things we were trying to save for. Our money-saving plan looked similar to a giant pile of crap. It stunk! Today, we have MONEY for things that are coming up and life is….richer.

The idea of Sinking Funds was featured on KTVK Channel 3 in Phoenix, AZ after this post was published

Here are some ideas for your sinking funds:

  • Christmas
  • Vacation
  • Birthdays & Gifts
  • New Car/Car Repair
  • Home Repairs
  • Emergency Fund
  • Taxes – Income and Property
  • Car Registration
  • Plastic Surgery
  • School Clothes / School Supplies
  • That thing you really really want
  • Insurance Premium Fund – often you can save money by paying your premium once a year versus each month
  • Medical Co-Pay Fund
  • That other thing you wanted

Lastly, I hope that I am providing you with content that is helpful to you and your bank account. It would mean a lot to me if you could leave me a comment telling me what you like and dislike – both are equally important to me. Also, don’t forget to subscribe to the Money Peach Blog below to receive exclusive tips on your money, and other extras that you won’t find in the blog posts!

Be good to yourself, your friends, your love, and BE GOOD TO YOUR MONEY!

 

13 Comments

  • For our military members, firefighters and special agents you can bank with USAA the same way as Ally or Capital One, also unlimited amount of accounts, no minimum balance and free; I love your suggestions and agree! Further you can ladder CDs for as short as 90days to 7years for various savings goals and often times get a little higher interest this way. You will likely need a minimum deposit for a CD, but in many cases it is not an out of reach amount. Thanks for the back to basics reminder!

    Reply
    • Thank-you Bianca for this awesome comment! Could you leave us with a link to take us directly to the product you are talking about?

      Reply
  • Just to let you know I am taking your advice and I am going to use the Ally Bank to set up my savings. I have three main goals right now and I have named them too. First is my Anthony fund, even though he works full time he is special needs and I want him to always know whoever takes charge after I am gone he will always be taken care of matter what. Second is the Indiana fund, yep my common law husband needs to go back this year and see his kids around Christmas time. Third is I promise I will not give this house away no matter what. I had one house that was free and clear, no mortgage payment, just the hoa and utilities and house insurance is all I had to pay. Second house, still painful to talk about. Don’t want to rent anymore. In other words I redid my budget to make it all happen, which it will happen.

    Reply
    • Carol,

      Good for you! Doing your budget and sticking to it will help you reach your goals. If you fail to plan, then you are planning to fail. Be proud of yourself for taking this first step. As for your “Anthony Fund”, were you aware there is a tax-favored savings plan for disabled children that was signed into law by the President in December 2014? The act is called the “Achieving a Better Life Experience Act” or ABLE, and it is referred to as a 529-ABLE-account. It is similar to a 529-college-savings-plan, but the money can be used for future financial needs of disabled children. Click here for the link to read more in an article from Kiplinger Personal Finance: https://www.kiplinger.com/article/saving/T042-C000-S002-savings-plans-for-the-disabled.html

      Reply
      • Yep I am sticking to my new budget, I want to save more money because I will feel better about myself and I want my kids to know that I left them something besides my life insurance policy for them. Thank you for the information about the savings plan for Anthony. I will definitely look into it. Like I said he works full time and is actually outgrowing some of the developmental disability, but I want to make sure 100 percent that he will always have something to fall back on when I am gone.

        Next question I hope you can answer, where is the best place to get a will drawn up? I seriously don’t know. I know I can get forms online, but I have some specific instructions of what I want done after I am gone.

        Reply
  • Peach,

    Because of you I started using the Capital One 360 account a few years ago. It’s where my emergency fund is and several other sinking funds are. The main savings account gets a .75% interest rate as well and compounds monthly I think, which is way better than a regular savings account from a bank. I’m still working at paying off credit debt and it is a constant battle, but I know I will win and will too be “living like no one else”. I estimate I’m still a few years from becoming debt free. The sinking funds definitely help budget for things that come up throughout the year, especially Christmas and vacation.

    Thank you Buddy

    War Eagle!

    Reply
    • Ryan!

      Thanks for sharing buddy! Sinking Funds are a game changer and will help you w/ your Debt Snowball as well. Nice work my man! 🙂

      Reply
  • Nice post. I often wondered if it’s worth the hassle to juggle multiple accounts but you make a good argument for it.
    Speaking of savings. I just heard about the Netspend savings account, which gives you 5% interest (up to $5000, then 0.5% on anything above that). Do you know anything about it? From what I understand, it can be fee free if you follow specific steps, the only bad thing is that their customer service stinks. Just wondering if you had any thoughts on it.

    Reply
    • I wasn’t aware of Netspend, but now you are going to have me looking at it 🙂 THanks Mariana for the comment and for the head up!

      Reply
  • Thanks for all the info Chris! I am already budgeting for dear life. Though I would love to set up a sinking fund, there is no such thing where I live (Chile)…got any ideas of an alternative for expats who are not American? I do not have an account in my home country (Sweden) either as I have been living down here for over 30 years. Thanks again!

    Reply
  • I have three separate savings accounts, one is an emergency fund, never touch unless it is an emergency, one is an investment, house, car savings, the other is for urgent matters, quite literally I pull money out for anything that is needed including repairs. This is good insights, keep it up.

    Reply
  • Great, Seeking fund is one of the best ways to save your fund every month. You can create one account for all of your sinking funds you just need to manage spreadsheet to track how much money you have put in for each item.

    Reply
  • I have listened to about 60% of all your podcasts. Fantastic content! Started my sinking fund today after I reworked our monthly budget!

    Reply

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