Sinking Funds-its Use and Benefits

Good Morning, I would like to discuss the amazing-ness of a “sinking fund.” For all of you that don’t know what it is, it is a type of fund where you set aside a certain amount of money towards a particular event or an”irregular” expense in the near future. Now, anyone can use this kind of fund and it is very useful for those with fluctuating incomes and/or paying off any debt. I suggest creating a separate savings/checking account (although I suggest using a checking so then there are no penalties for not depositing/taking out too many times) to allocate a certain amount at a pay period or at the beginning/end of the month. I typically use this kind of fund for my annual car insurance and vacation spending money. I feel that having these kind of funds have made me a better saver AND spender. The car insurance is an expense that I am aware of every year, so allocating a small amount every month defers the cost when July comes around and it’s not an expense that I have to struggle to come up with. When I use this fund additionally for vacation, it helps me save money that does not need to eat into my regular checking for bills and other household expenses. It also allows be to set a budget for myself so I don’t have the YOLO mentality (that apparently Clever Girl Finance‘s money quiz described me, which made me kind of sad) that I’m on vacation and that I deserve to blow a large amount of money on things that I don’t really need to spend because I’m celebrating not being in Buffalo NY. You can calculate your sinking fund by taking the total amount of the expense/budget and simply dividing it by the time frame. I typically change my direct deposit to send money directly to my savings/additional checking account every pay period so then I don’t cheat myself by not allocating or changing the amount frequently. I feel that an account like this keeps me (for a lack of better words) accountable to save and be responsible in a world where we don’t plan for things like we used to. I feel that the budget that I create is permission to spend without judging myself. It’s also important to remember that its OK to make mistakes because that’s how we learn. I am guilty of not always saving or sticking to a said budget and at times not allocating or changing the amount to be sent to savings. I found that these are terrible practices and in the end, only you suffer especially if you have something financial come up. With us working on our pending nuptials, once I return to work I will be aggressively saving and budgeting better so I have more money to put towards debt and saving for wedding expenses. I already have a plan in place once I resume my usual financials. I do feel guilty because I feel that I should have been doing this earlier this year but with my surgery, I lost 6+ months saving for medical expenses and losing money with disability instead. Oh well, I can’t look backwards and have every intention of just moving forward! Ohhhhh…this can be another example! When my doctors told me that I was sick and that would require a major surgery, I started saving without having ANY idea what the cost would be to me. I knew that it could be $5 or it could be $50,000. I saved every paycheck (sans bills) and reduced by spending tremendously. I stopped going to local thrift stores or estate sales, I stopped going to Target weekly to buy mindless crap and I had my haircut at Supercuts for the last few months to save. Mind you, I had a lot of co-pays and with being on disability, I am losing about $400 a month from my usual income but this helped me plan and not be in any dire need. I can’t tell you how many people asked about my financials and how I was doing and to be honest, I am OK. I am still saving and not spending where I should not. Although I have about $1200 less in savings so far, my continued saving has helped me stay afloat and not in the red by any means. So people, the lesson is SAVE!