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Sinking Funds: The Secret to Stress-Free Spending

Jonah Kearns
13 minutes ago
3 min read

Why “Unexpected” Expenses Aren’t Actually Unexpected

Car repairs, Christmas, insurance premiums—they aren’t surprises. They’re just poorly planned. Everyone has expenses that recur regularly or are due on a specific future date. If you know the expense, why do so many end up ruining your budget when the due date arrives? Common examples include 6-month car insurance premiums, birthday gifts, vehicle registrations, and Christmas.

 

What Is a Sinking Fund?

Sinking Funds are a proactive, intentional strategy for tackling the expenses that we see on the calendar. By deliberately saving a certain percentage of the total cost based on the time until it's due breaks the cost into manageable chunks that don’t overload your monthly budget. For example, Christmas falls on December 25th every year. Starting in January, we set our Christmas budget at $600. We then take our budget ($600), divide it by the number of months until our due date (12), and allocate that amount to our monthly budget.

 

$600/12=$50 per month

 

This budget line item is unique because it is not a bill or something you would dip into your emergency fund for. NOT A BILL, NOT AN EMERGENCY. Instead, it is a fund that builds over time to cover the expense or cash flow of a purchase. The goal of implementing this monthly discipline is to become proficient at planning rather than always reacting.

 

Why Sinking Funds Matter (Ramsey Perspective)

Staying out of debt is always at the forefront in the minds of those enjoying or seeking financial peace. Sinking Funds help us stay ahead of our finances and enjoy the reduced stress that comes with an effective budget. In addition, when the purchase or expense comes due, your budget will not be negatively affected because you prepared. This intentional way of managing your finances is one of the habits that keep us on track to financial peace. A great example of living like no one else, so you can later live and give like no one else.

 

Common Sinking Fund Categories

Some more common categories of sinking funds are:

  • Car maintenance and repairs – Build up a pile of cash for that upcoming oil change or just create a buffer should an unknown repair pop up to protect your emergency fund.

  • Home maintenance – Not every home repair or upgrade is urgent. Set a date to complete the repair and plan how to save for it.

  • Insurance premiums (annual/semi-annual)

  • Christmas and gifts – Birthdays and Christmas are not surprises! Save yourself the stress during days that are supposed to be celebratory.

  • Vacations – Usually a large expense. Depending on your income, saving for vacation could take a long time. Plan accordingly!

  • Medical expenses

  • Kids’ activities or school costs

 

Common Mistakes to Avoid

An important caveat: these sinking funds should be deliberately assigned to a future purchase. You may see a stack of a few hundred dollars and be tempted to abandon the fund and use the money for something else. In addition, a sinking fund does not replace an emergency fund.

 

Commit to building up to purchases!

 

Be specific about what requires a sinking fund vs. what does not. Purchases that are not time-sensitive (new tool, next car, house renovation) are ideal for a sinking fund. Remember, these things matter enough to us to spend our time and money building toward them. Give them the value they deserve and treat them as such.

 

Avoid overcomplicating your system. Using a separate checking account to hold the money, separate from the account tied to the debit card, helps distinguish which dollars are for the budget and which are for the sinking fund. You could also use a low-risk investment vehicle, such as a Money Market or a Brokerage Account. Do not forget to review regularly and verify the fund is on track.

 

Lastly, CELEBRATE! When you reach the end of a sinking funds period and pay that bill or purchase the item, recognize your tenacity and discipline. Use that feeling of accomplishment to carry energy into the next fund and further cement your new healthy habit.

 

The Bigger Picture: Peace and Control

Sinking funds shift mindset from reactive to proactive. The goal is to control our finances, not the other way around. Our budget does what we direct it to do. Every month we lean into the friction of budgeting and saving, we build confidence and reduce our anxiety about expenses.

 

Call to Action

Start a sinking fund today. Whether it’s a birthday gift or an insurance premium coming up, pick one to get rolling this month. Review your upcoming expenses in the next 6 to 12 months. What can you get ahead of? What expense invokes a feeling of anxiety when you think about it? That’s a great one to start with.

 

If you want help building a plan that creates margin and eliminates stress, we’re here to help. Reach out to your financial advisor or our financial coach for more information.

 

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

​

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

​

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

​

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

​

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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