A Sinking Fund is an amount of money set aside each month, for a set amount of time, towards a future purchase making shopping a more enjoyable and stress free experience.
You may have done a Sinking Fund with a Christmas Club account. Every month you saved a set amount of money in an account earmarked for Christmas and then withdrew the funds in time to pay for your Christmas gifts. For me there is a sense of relief knowing the money is in my account, and I will stay free of debt. Christmas is no longer an emergency. I have a clear and set budget determined by how much I saved each month over the past 12 months. No debt, no worry!
You can have a Sinking Fund for anything you would like, or will need, to purchase in the future. Cars, weddings, furniture, a new TV and even heating oil, to name a few. It is as simple and, as difficult, as saving money for these items monthly until you have reached the amount needed for your purchase.
My husband, Art, and I have recently taken the Sinking Fund to the next level. Instead of debting or playing the 0% credit card interest game we are saving for all our future purchases in various Sinking Funds.
What makes a Sinking Fund simple for Art and I, is having direct deposit and the ability to move funds into different accounts on line. For example, saving money every month to help with the burden of the upcoming winter oil bill is easy. We set a budget based on the amount of our annual oil expense from the previous year, plus the cost of our maintenance contract and divide by 12 (months). This lessens the burden of having to budget the higher payment amount needed when paying our annual oil expense over a 6 month period (winter season).
For the purpose of simplicity: $2400 (annual oil expense) divided by 12 (months) = $200/month saved to our Heating Sinking Fund. Compared to $2400 (annual oil expense) divided by 6 (months) = $400/month paid monthly to our oil supplier. We do the same for our auto insurance allowing us to pay the discounted premium in a one-time annual payment.
What makes a Sinking Fund difficult is that I Want What I Want...When I Want It!!! Pressing the pause button, stifling my desire and obsession for instant gratification when I see something I want is an inner struggle that I don’t always win.
Recently, my sisters, Art and I went to Sam’s Club to “look” at gazebos. I voiced my concern and set my intention with all of them before we headed to the store: We were in pause mode. Nothing would be purchased without a 24 hour pause.
Before I tell you the truth of that day, I want you to know that I pride myself on my ability to pause. I always, and I mean always, feel proud when I pause on a purchase. Most of the time the item I want to buy does not get purchased when I use The Power of the Pause. Purchasing decisions are almost always different when the euphoria of the buy is tempered by 24 hours of pause under my belt.
We left Sam’s Club that July day with a gazebo for my sisters and a gazebo for us, a beautiful outdoor dining set for my sisters and a “sun blocking” grilling gazebo for us, a lounge chair for my sister and a beautiful outdoor trash receptacle that matches our beautiful gazebo for us. We spent the entire day in euphoria around our new purchases; we were actually giggling.
Now don’t get me wrong, I love the items we purchased. They bring us joy. Art and I rationalized the purchases with the idea that we were creating an oasis in our backyard so we will stay home...and save money!
What I hated the most about this spontaneous and unplanned purchase was that I now had anxiety and buyer's remorse. This purchase messed up our entire budget for the next couple of months because the money was not pre-saved in a Sinking Fund, but debted with a card. We were committed to not creating debt anymore and this was not an emergency purchase to be taken from our emergency fund; we had fallen short. We went from shopping euphoria to the Stress of The Debt.
Two months later the debt has been paid in full and another lesson learned.