Meet Sinking Funds aka Your New Money Bestie

I think it’s time I introduced you to one of my best friends in the personal finance game…

💰 SINKING FUNDS!

So What Exactly is a Sinking Fund?

A sinking fund is a stash of money intentionally set aside for a future expense.

Not to be confused with an emergency fund, which serves as a safeguard against life’s UNPREDICTABLE moments, sinking funds are perfect for covering the cost of future KNOWN expenses. For example:

🚗 A fund to cover future vehicle maintenance

✈️ A travel fund to cover trips and vacations

👗 A fund to cover the cost of updating your wardrobe as the seasons change

💅 A treat yo self fund for the times you want to reward yourself guilt-free (you NEED one of these ASAP!)

The Benefits of Sinking Funds

With sinking funds, you save bit-by-bit over a period of time toward a specific financial goal. For example, setting aside $100 from every paycheck to cover the cost of your next vacation.

This practice promotes INTENTIONAL saving habits which keeps you on budget, out of debt, and focused on your financial goals.

Get Started

By now you should be totally convinced that you need to start a sinking fund or two (OR TEN!) of your own. But before you dive headfirst into the magical land of sinking fund bliss, there’s one important question to be answered still:

Where should I keep my sinking funds?

My recommendation:

Keep each of your sinking funds in a separate savings account. This ensures your savings remain SACRED and protects against the temptation to spend before reaching your savings goal.

And if you really want to kick things up a notch, take advantage of a high-yield savings account (HYSA). There are many options to choose from including Wealthfront, SoFi, and my personal favorite, Ally.