Expanding on last week’s idea around increasing savings during a time of high interest rates as a way to decrease credit card debt (again, high interest rates!) segues perfectly into using Sinking Funds as a way to prepare for holiday spending!
The Holidays are the one time of year we can guarantee to see an increase in spending. The choice you have is who’s money do you want to spend to pay for the holidays? Your own, interest free, or the credit card company’s, with the possibility of accumulating more debt?! Read below for a refresher on Sinking Funds, and how you might use one to bypass those inevitable credit card bills that always show up in January!
What are Sinking Funds?
Sinking Funds are essentially buckets of money we save in advance with the purpose of funding very specific expenses. You can use a Sinking Fund for a variety of savings goals: something boring that occurs occasionally, like car insurance, or even something amazing like a vacation you have coming up!
(Personal Disclaimer: I’ve currently been saving all year for an upcoming trip to NYC and what a relief it will be to pay for everything from that account!)
How Do Sinking Funds Work?
The best way to take advantage of Sinking Funds is to do the math of how much you need to set aside, and then set up automatic transfers. You can open a special High Yield Savings Account (HYSA) (do this!) or use a Savings Account you already have. Then, decide how much you’re going to need to spend, and by what date. Next, back it out by the amount of time you have between now and your goal to start spending that money. Take the goal amount and divide it by the number of weeks or months you have on hand.
For Example: If I want to start shopping for the Holidays on December 1, and I want to spend $500, there’s about 8 weeks between now and then. Maths! $500/8 weeks = $62.50/week. I would set up a recurring transfer of $62.50/week from my Checking Account to this specific “Sinking Fund” Savings Account. Alternatively, if I wanted the transfer in line with my paychecks, I would have the amount pulled the day I got paid and if I wanted the amount pulled monthly I would divide by number of months, not weeks. The most important part is that the money makes it into the Sinking Fund and is not used to fund anything other than that which is intended. Your money sits there, accumulating interest, and then is ready for you to spend when the time comes!
Is a Sinking Fund Right for Me?
If you often find yourself unable to pay off a credit card bill each month in full, Sinking Funds may be a great tool for you! What better way to avoid using credit cards than to plan ahead. Even small, manageable, transfer amounts add up over time!
Tip: Check your existing online banking platform and see if they already have “buckets” available within a savings account. Many already do! Otherwise, you will need to open additional Savings Accounts (make sure there aren’t any required minimums or annual fees!) and label each one for the savings goals that it is.
Consider this.. time is going to pass by regardless. How good would future you feel to pull from these accounts when you need them?
Unlocking Abundance 