You have no way of knowing if these things are coming or when they’ll happen. For example, the air conditioner goes out, you get a flat tire, or one of your kids chips a tooth. Very different.Ī sinking fund is for those expenses you know are coming and can plan ahead for-like your kid’s soccer season or the bridesmaid dress you need for your friend’s wedding.Īn emergency fund, on the other hand, is for unexpected expenses. That way, you’ll know exactly when you hit your savings goals and how much you have to spend in each category.Ī sinking fund is also different from an emergency fund. So, instead of just throwing money into your savings account, you can create multiple sinking funds for specific purposes. Sooner or later, the lines will start to blur. If you’re trying to save for a new car, next year’s vacation, your anniversary gifts, your kid’s dance camp, and your Christmas presents all in the same savings account, that’s a lot to keep track of. And a sinking fund is how you save your money. A savings account is where you save your money. Sinking funds and savings accounts go hand in hand, but they’re not the same thing. You can create a sinking fund for any financial goal, dream or expense you have! Sinking Fund vs. Sinking funds work great for things you can’t or don’t want to pay for in a single month’s budget, like: That way, you’re saving up small amounts over time, instead of having to come up with a big chunk of money all at once. Here’s how sinking funds work: Every month, you’ll save a certain amount of money for a specific purpose to use at a later date. So, let’s dive in to how sinking funds work and how to create one so you can get a head start on your savings goals!Ī sinking fund is a strategic way to save money by setting aside a little bit of money each month. Whether you’re planning a trip to Disney World or buying a new couch or even a new car-sinking funds help you pay cash for all of it and avoid the post-purchase regret. What are sinking funds? They’re the perfect way to save up for any large expense.
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