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