An emergency fund is your savings BFF when an unexpected expense pops up. For everything else, there’s a sinking fund.
Basically, the savings-account opposite of an emergency fund. Instead of withdrawing money for surprise bills, sinking funds are where you set aside money for planned expenses that don’t fit nicely in your regular monthly budget.
Quarterly insurance premiums, new tires, your dog’s yearly checkup, back-to-school outfits for your kids, etc.
Take a sec to think about those expenses that usually throw you off your budgeting game – even though they come up every year. Those are perfect candidates for sinking funds. And yes, you can have as many as you want. Estimate how much these things typically set you back, and divide that by the number of months until it’s time to pay. If you usually spend $600 on holiday gifts, start putting away about $200 a month now.
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Like your emergency savings, sinking funds should be readily accessible and separate from your checking account. A high-yield bank account is usually the winner, so you can earn some extra interest while you save.
Sinking accounts can help keep your budget afloat. So think ahead and start saving early. Then cheer for yourself when the bill’s due and you’re like ‘I got this.'