What is a good way to pay for Summer Travel..or any short-term Savings Goal?
Use something called Sinking Funds!
If you’re unfamiliar, “Sinking Funds” is a term that comes from the corporate business world and is essentially a way of splitting a financial goal up into manageable chunks.
This is also a good one to use for non-traditional earners, entrepreneurs or contract workers–anyone who’s income changes month-to-month.
Read below on how Sinking Funds might work for your situation.
For All Savers:
Sinking Funds are typically Savings that are ear-marked for a specific one-time expense, like a vacation, Christmas shopping or any planned expense.
The How:
Estimate the goal amount.
Divide by the number of months away that the event is happening.
Calculate your contribution per month.
These are your Sinking Funds and they will go into a new account, like an accessible Savings Account.
Name the account as to what the money is for, if that’s an option.
Some apps like Mint & Empower have Sinking Fund capabilities, as do some banking institutions offer the ability to customize these savings buckets for you.
Automate the transfer monthly.
Check your progress once in awhile.
Once the target is reached turn off the transfer.
For Variable Income Earners:
Since it can be more difficult to budget on a changing income month-to-month, have a Sinking Fund account set up that you contribute to during high-earning months.
Once the high earning season is over, turn that transfer off and pull from that account during low-income months.
Repeat seasonally or whatever your cash-flow cycle is.
Caution: Best not to combine your Sinking Funds with your Emergency Fund. You may accidentally spend from the wrong earmarked savings! Emergency Funds should be accessible 24/7.
Unlocking Abundance 