SINKING FUNDS | Our Categories and Tracking Strategy Explained


(playful music) – Hey you guys it’s Dana and
it’s time to talk about money. And in this video I wanted to talk all about sinking funds, what they are, how to set
them up, how to use them, as well as our personal
sinking fund categories and how we how we use them. So let’s talk about that. (cash register dinging) Okay so last week I shared
a video with you guys talking all about how to set up a annual trended statement of household expenses and in the bottom of that statement, I shared with you a
couple of the categories that we use or we have set
up for our sinking funds. And so a few of you asked
me to go over sinking funds, so here it is, so let’s talk about it. And if you don’t know
what a sinking fund is, it essentially is a savings account. So it’s a separate savings
account or a line item in your monthly budget
where you save money towards an item or an event, something that is in the future, something that you know you’re
going to need money for, essentially, is what a sinking fund is. And so you know the item
is sinking sorta speak and you’re going to have to replace it, so you need to save money for that. So, you know, car is an
excellent example, right? Cars just go down in value. That’s all that they do right over time. So eventually, you’re going
to have to replace your car. So that’s just one example
of what a sinking fund is. And then you can set it up in either, like I said a separate bank account, like a whole bank account
can be just for that item or event that you’re saving for. Or you can do the line
item in your budget, which means that every month
you just have, you know, you act as if you are spending the money and so the line item is on there, you take it out, the kind of
take it out of your account but it’s still floating within
your main checking account. So the money’s gonna
build and build and build in that account until
the event or the item, until the money is needed, then you would have it there to use. Now for your sinking fund,
I highly, highly suggest that you automate it. Now one of the difficulties that I see when you have a line item in your budget to save for the item that
you need in your sinking fund is that it’s very
difficult to be disciplined and to not spend that money when it’s floating in your account. And also if you are writing a check to a separate account
to save for something for your sinking fund, you have to write the check
physically every month or every two weeks or
whenever you get paid, you are less likely to do it, right? So that’s obviously why, you know, 401k or your taxes. The government’s smart, they realize that in order to get you to pay your taxes that
they need to withhold it from your paycheck and take the money before you even get it, they have to set it to the side. So it’s best to automate it wherever and whenever you can. So automate your sinking funds if you can. For me I can set up direct
deposit through my work, so luckily for me my
employer will allow me to put as many bank accounts as I want and I just put the bank
account, the dollar amount that I want to come out per paycheck into that other account and away it goes. I never even see it, it’s just set aside in a separate account. Within your company, they might limit the amount of checking accounts that you can put on your
direct deposit form. And if that’s the case
you can just have one or two separate bank accounts. And then within those
one or two or, you know, whatever, however many you
can have set off to the side, within that other sinking
fund bank account, you can list out your
categories just personally. Then you just know, now if
you have, you can add it up. If you have five different
categories of sinking funds and you know how much money per paycheck you want to come out, you know, to go into those separate categories, you can just add up the
total and then put that on your direct deposit form, and then you personally will
know in that separate account, you know $100 is for
this and 200 is for that. And you know what that money
is sitting in there for. And so you can track
it separately on paper, in a spreadsheet or
however you want to do it. So I highly recommend that
and that is what we do. We have several different bank accounts, which I’m going to go
over in detail with you that I have set up in direct deposit, so money goes off to
go into those accounts. Now it wouldn’t be a video of mine if we didn’t talk about
getting out of debt. So if you’re getting out of debt or beginning your get
get out of debt journey, how does that relate
to your sinking funds? So if you follow Dave Ramsey like we do, when you are on Baby Step 2, which is paying off all
of your consumer debt, you’re only supposed to have $1,000 in a separate savings account
as your emergency fund. You’re not supposed to
be saving extra money on top of that. That is what he teaches and
this confused me for a while back in the beginning days
and I didn’t understand this because I was like we’re not
supposed to have more money in a separate savings
account but sinking funds, money saved in a separate
savings account would be money saved in a separate savings account. Well if you’re in the middle
of getting out of debt, obviously you wanna be
careful with your categories. You don’t want to be saving for a vacation or saving money to buy a
$20,000 car just for fun because you’re sick of
the car you’re driving. Those things don’t count. You should not be saving
for that kind of item. But if you know that a big home repair is gonna be coming up, you know, your windows are busted and
you know you are gonna have to replace your windows soon or you’re gonna be freezing in the winter. Or you know Christmas is coming, that is definitely coming
and you have children, and you can’t just you can’t
have no money for Christmas, you’re not going to do
that probably, right? And if you don’t save in a sinking fund for those things you’re going to end up reaching for a credit card
or going back into debt. So you definitely still
need some sinking funds when you’re paying off debt but you you might not be able to fully fund certain categories. Or once you’re out of debt, you’re gonna be able to
fund these accounts further or create new sinking fund accounts. So sinking funds, it’s an ebb and flow. You have to reevaluate it every year and then obviously how much
money you’re putting into them is going to change. Correct? It’s something that you set certain things how much money you’d like to save. So it’s going to evolve. But if you’re in the middle
of getting out of debt just be careful when
setting up sinking funds. You don’t go too crazy with them and don’t try to you
know fund them too high because it’s going to set you back as far as your goals
of getting out of debt. Okay? All right. Okay, now if you have
an event like Christmas or something coming up, you know how much it’s gonna cost, right? You know how much money
you’re going to need in eight months to make
some kind of big repair or your sump pump has
broken in your basement, like ours did once, and you
know you’re going to need $1,000 to replace it in five months from now. Okay so you know what that money is. All you have to do is
take that amount of money and divide it by the number of paychecks or the number of months that you have until that event occurs. And then you’ll know how much money to be putting into that sinking fund. This is where it comes in really handy if you’ve been doing your monthly budgets, if you’ve been budgeting
for a couple years, especially if you’ve been
doing that trended statement, you know exactly how much money you spend. I know exactly how much
money we spend on car repair, car maintenance. I know the average year-to-year and so it makes it a lot simpler to save in a sinking fund when you have an idea of how much money you’re
going to be needing because then you can accurately set up your direct deposit to put
the correct amount aside per paycheck into this account. So when the time comes, you’ll have enough money for it, right? All right so to go into detail now on the actual sinking funds
that we have the categories. And we do have separate bank accounts for a good number of ’em. Somehow it ended up that
we have 10 bank accounts and over our 15 years of
marriage I’ve been, you know, opening up these bank accounts. So that’s what we have. And number one is a Christmas bank account and in that is all the
money every paycheck, direct deposited into this
Christmas bank account. And I’ve had that one
for years and I love it. I remember the days, Christmas, and we had no money and
we used our credit cards and it was so stressful but
now every single Christmas for us is a debt-free Christmas, and it just feels so much better. So I highly recommend, whatever
holiday you celebrate for, setting aside this sinking
fund for that event. Okay, so we have a Christmas account. Number two, we have a car repair, car replacement bank account. And certain things I really like having a separate bank account for because I like to have a debit card linked to those accounts. And so for the Christmas account, I have a little sticker on it that says Christmas on the debit card, and I put that card away and only comes out around Christmas time. And then for the car
repair, for oil changes and for the annual inspection we have due, because we live in Pennsylvania, we have to do an annual inspection. On the car account I have
a debit card for that and there’s a sticker on it that says car. And then I also have checks link to it because in case we have to replace a car, I just want to be able to write a check and pay for the car. And so I like having
that separate account, separate sinking fund for car repair, car replacement with the
debit card linked to it. Then third we have an
account for home repair and home remodel. We are dreaming and dreaming and dreaming desperately for a new kitchen, new bathroom and so we
have a separate account to save for home repair. Every year something happens in the house, it’s not a matter of when, it’s a matter of if. You know, dryer breaks, dishwasher. You know, we have a flood in the basement. Things happen so we have
a separate sinking fund for all that home stuff. And that is really been wonderful. It seems that we need
at least $1,000 a year for unexpected home repair items. If you own a home, even if you’re, this is separate, but even
if your mortgage payment is the same as your rent payment, that’s why people always
justify buying a home, you don’t think about the fact that you have all these
repairs and things come up. So home ownership is expensive. So we have this home repair
account sinking fund. We have really good health
insurance, really good. I work for a health care organization and we’ve got fantastic benefits. However, it never covers hearing aids and my husband was born
with a hearing impairment, he needs hearing aids every seven years. So we have a separate
sinking fund for medical. So for his hearing aids that he has to get every seven years. And so it’s a very small
amount, very small, like $10 a paycheck or
something like that, and going into this hearing aid account. So every seven years we’ll have a couple thousand dollars in there to pay for his hearing aids but also for co-pays and things like that. If you have like an HSA or something, then that could be your sinking fund, your account for health related benefits but we have this other account just for his hearing aids and stuff and for unexpected medical
things that come up. And so that’s that’s a sinking fund. Next we have kids activities, braces. So this is the kids sinking fund account. And we’ve got four children. We’re about to begin with
braces coming up here soon and braces, we need cash for that. And then also just throughout the year it seems like they have a lot of things for school that we end up having to buy or like my niece is selling popcorn. She’s one of the first
girls in the Cub Scouts, which is very exciting
for my brother-in-law because he’s an Eagle Scout. So she is in Cub Scouts and
so she’s selling popcorn, so when we’re gonna buy popcorn from her to help support her in the Cub Scouts, it comes out of the kids account. She’s not technically our
kid but it’s kid related. So I had this separate account
for all those kids things for school that we have to pay for or, you know, it might be unexpected just so I know that. It also helps me with
tracking purposes, you know, how much we’re spending every
year for the kids stuff, whatever that is. You know, activities that they’re doing, school dances, the father-son, I mean the father-daughter dance. You know things come
up throughout the year that we have to pay the school for, and I just like to have
that in a separate account so that’s where it lives and, you know, I set some money aside
out of every paycheck for all those events. Then we have a vacation/camping account. Now this accounts only
like $200 and that’s it. (chuckles) But camping is very inexpensive. But if you are going to be
taking a vacation every year then you can have a separate account, also with a debit card linked to it because back in the day when
we would take vacations, this would be where we would
always overdraw our account. Like you go on vacation, you’re just spending money running around, you’re not really keeping
track of what you’re doing, money’s flying in and out of your, or out of your account, not in. And you end up just going over. And I actually have heard
other people tell me this, too, that it happens a lot. So I like having, I think it’s a really good idea to have a separate vacation account with a debit card linked to it. So you have the money in there, that’s where the money comes
out when you’re on vacation. It’s easier to keep like, you know, keep a handle on
how much you’re spending or overspending when
you’re away on vacation if you have a separate vacation account that’s separate from like your bills and your other account. You don’t wanna, you know, say like you know your
mortgage payments coming out and like you spent too
much on your vacation, so then your mortgage payments, I don’t know, I just think it’s nice to have it be separate. That way you don’t have
to worry about your life, your bills or main stuff getting messed up because you’re getting messed up on vacation with overspending. Hopefully you’re not doing that. So we have a separate
account just for camping, so I can just pay for the $30 a night that we go camping and any little items that I want to upgrade from year to year, which is really the only vacation we’ve been taking is camping. Okay so I think that was six accounts that we have that I mentioned. However we also have our savings account, which is our emergency account I mean. Our emergency money savings
account, which is seven. And then our main checking account for bill paying, which is eight. And then I have our ninth account is my business account that
all the money runs through from this channel and whatever I’ll say, you know, buy for this channel. When I pay for captioning that
comes out of that account, my expenses for it comes out of there. So that’s nine. And then the 10th account is actually just a separate savings account, which is sort of, I guess
this is a sinking fund, for our daughter which
turns 16 to buy a car. So that’s actually all her
piggy bank money in there. So we don’t touch that account at all. And then I actually do add money to that just a little bit. So by the time she turns 16, and hopefully she’s gonna work, and then whatever she earns working, we’re gonna match it with the money out of this account for her to buy her first car when she’s 16. Not a big fancy car, but like, you know, $5,000 car is what I’m thinking. All right that’s our 10
accounts that we have, our bank accounts. Okay so I hope that that helped to answer any questions you had about sinking funds or sinking accounts. Let me know if you have any questions and I’ll do my best answer. If there’s another topic
you want me to talk on, please leave that down
below in the comments and I’ll do my best to get to it. And if it’s your first time
here, be sure to subscribe. I’m here every single Tuesday talking all about money. We’re a family of six living
in the Philadelphia area. I work full time in finance
and do this channel on the side just for for fun. (chuckles) My creative side of life. You know, I got the accounting side, you know, finance brain, and then I do this for creative. Okay all right, enough said. All right thank you guys for watching and I’ll talk to you in the next video. Bye.

20 thoughts on “SINKING FUNDS | Our Categories and Tracking Strategy Explained

  • guess you can keel everything very well organized that way…like separate cash (bank instead) envelopes. thanks for sharing.

  • Are these fee free accounts? Seems like the monthly fees would add up quickly. Thanks for the videos and your uplifting attitude. It’s nice to find someone who is not condescending when talking about money.

  • I’m struggling with transferring money all the time for my accounts because I have a credit union that allows separate savings but not checking. It would be nice to ha e a debit card for my Christmas and car fund at least!

  • Are your accounts at separate Banks? I've opened online accts for sinking funds, but they don't have debit cards. That would be so helpful! I especially love the idea for your vacation fund.

  • Hooray I love sinking funds I have one for my house taxes and it's a lifesaver because when I get my tax bill in November I can pay all the taxes because of my sinking funds

  • Dana,
    I've been a subscriber for a while now and just wanted to say that your videos are awesome thank you so much for putting them out there for the world to see! I constantly will watch and take notes, especially when I am feeling stuck (currently I am on BS1)
    Thanks!

  • I don't have traditional sinking fund accounts. I have a Christmas club, no debit card, it comes second week of October every year. Afraid if i have a debit card i wont be able to control myself. I was banking at 3 different banks, but when my bank merged with another bank they began charging me $4.00 per month service charge, so i closed that account. i do have an account at the credit union, i put my coupon savings money and my coin saving money. If i save 1.50 with a coupon i transfer that amount or take it out of my grocery envelope and put into the savings. I also take my saved coins once a month as well. I saved 18.03 the month of august. I haven't decided yet what to use that money toward, but I anticipate being debt free my truck will be paid for in January. I have one other debt with an 800 balance which is a credit card and it will also be paid completely by January as well. It has been a long journey trying to become debt free, your an inspiration! thanks!!

  • I only have one account because multiple accounts would be too confusing for me. I just created a spreadsheet with different columns for things like vet cost, appliance repair/replacement, car repair/replacement, TV replacement, home repairs, christmas, etc. I still have 2 debts left before I'm debt free which is only $12K but, $1K is not enough due to both of us having old cars, retainer wall has collapsed & we're saving money to replace it, our TV is 20 yrs old, etc.

  • Hi Dana! Interesting video. We are both pretty frugal by nature so we just have a main savings account and a budget. The budget is very detailed and we just plunk what’s left over into savings. Seems to work for us…thanks for brightening up Tuesday’s again now that I’m back to work!

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