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Watching Your Wallet: The importance of sinking funds

Watching Your Wallet: The importance of sinking funds
Published: May. 17, 2022 at 5:54 PM EDT
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LANSING, Mich. (WILX) - From a family vacation to holiday gifts, there are expenses that you know are coming every year.

The costs are predictable, but many people are still unprepared.

If you are relying on your credit card or pulling from your savings each year for predictable costs -- things you know you have to pay for like your homeowner’s association fee, your car tax, holiday gifts and birthday presents -- there is a way to stop the cycle.

Experts said you may want to consider using one or more “sinking funds.” It’s a savings account dedicated to a particular expense that you fund a little bit at a time with regular payments.

You would add a sinking fund to your budget for expenses that come up at the same time each year or to plan for a big purchase: say a couch or bedroom furniture set. Your emergency fund should be for true emergencies.

The sinking fund has a specific goal attached it makes you think ahead and budget out $20-30 a month to prepare yourself for expenses that really shouldn’t surprise you each year.

More: Watching Your Wallet

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