What is a Sinking Fund?
Have you ever heard of a sinking fund? It is a common term in our personal budget training.
A sinking fund is a fictional place where you store your money for upcoming expenses that do not occur monthly but you know are coming up in the near future. There are two types. The first is for regular expenses that do not happen monthly, for example, homeowners insurance and property taxes. You know how much these are going to be, so you divide the total by however much longer you have before the bill is due, and you have your amount to set aside.
The second type is for things that do not occur regularly, but you know will happen. Things like car repair, clothing, gifts, or furniture replacement. These things should be a line item in your budget, but will not have a fixed amount. This is something that you will decide. Most of this kind of sinking fund can wait till after you have established an emergency fund to deal with those surprises.
Labels: Budget, emergency fund, sinking fund
Posted By: Joe on Wednesday, May 28, 2008
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