Sinking funds or as I like to call them “big expense fund” is a very important category in every budget. Also known as the envelope system if you are old school! We all have expenses that are not daily or monthly. For example, car registration, Costco memberships and tires. Yup, Costco! All those little things add up. Most people don’t even think about how those will be paid for. But they add up over the course of a year.
A sinking fund is a category you include in your budget every month. The goal is to keep that money aside until you need it. For example, a $120 Costco membership would be $10 a month. ($10x12months=$120/year). Planning for these kind of purchases will give you peace of mind!
It is important to know that this is separate from an emergency fund. An emergency is unexpected, urgent and necessary. You know that Christmas is on December 25, every single year. So buying Christmas presents is not an emergency. Having a “Christmas fund” where you contribute monthly would be the way to go. You could combine all the expenses into one fund or have a fund for each category. The main thing is to keep track of the expenses and be organized.