What is a Sinking Fund?

And is it right for you?

A Sinking Fund is a super smart but incredibly simple financial strategy where you set aside money regularly for all sorts of ad-hoc costs like school uniforms, sports fees, hair cuts, doctor visits and many, many more random and not-so-random costs so that no matter what the potential frequency of these costs, monthly, quarterly, annually, there is always enough money to cover them.

The balance of your Sinking Fund account fluctuates as contributions are made and money is spent, but should always remain in credit as some categories offset others. Knowing that you have put aside money for all these ad hoc life costs makes you feel like an absolute super hero!

But is a Sinking Fund right for you?

Because you set up your sinking fund according to your own personal/family costs and needs, yes, a sinking fund is right for you!  Check out the scenario’s below – do any of these sound familiar?

Scenario 1 – Your child breaks a window with their football

Option a – Get the window fixed with money from your Savings account.  Feel defeated when you see your Savings account balance drop (again!) instead of increase.

Option b – Get the window fixed with money from your Sinking Fund (the House Repairs and Maintenance category).  Feel slightly smug and very organised because you’ve got this money available without having to touch your savings.

Scenario 2 – Your insurance premiums have several different frequencies.  You pay your home and contents insurance annually, your personal risk insurance (Life Insurance etc) fortnightly, and you’re pretty sure your medical cover is paid monthly.

Option a – You constantly check that your bank account has a high enough balance to ensure you don’t have any direct debit’s or automatic payments dishonour – stressful!  Hold on a minute, what account does that monthly payment come from again?

Option b – All your direct debits come from your Sinking Funds account.  You know exactly how much you pay for all your insurance premiums, and your Sinking Fund account always has more than enough to cover these payments.  You feel organised, calm and totally on the ball.

Scenario 3 – Your car is due for a service

Option a – Put it off for a few months until you save up some money for this.  Oops, you had to use that money to pay for your daughter's swimming lessons (essential!), so put the car service off a little longer while you save up again.  Uh oh, the engine light is on, book in for your car service and whack the cost on your credit card.  Feel anxious about your credit card balance.

Option b – Book your car service.  Pay for it from your Sinking Fund.  Boom.

If you want to bring some real intention and organisation to your finances, then yes, a Sinking Fund is definitely right for you.

If you’re keen to know more about Sinking Funds and get yours set up, sign up for my mini-online course that will take you through a few simple steps and provide a template, so that you can have your own Sinking Fund set up in minutes – it’s that easy, and it will leave you feeling super chilled and prepared.  You’ve got to love that feeling!

Sign up here: https://www.thrivefinancial.co.nz/programs

Kim