There are lots of ways to save up to pay our bills. No one wants to be hit with an unexpected bill because their car breaks down. Not many of us can afford to pay for an annual holiday outright. With that in mind, one of the ways to save is to set up individual pots of cash that are for specific things. These can be referred to as sinking funds. Let's have a look at how to save into sinking funds.
What Exactly Are Sinking Funds?
Firstly, we need to establish what exactly sinking funds are. It is a fund, a strategic way of saving money for a specific thing. This could be done weekly, monthly or just whenever you are able to put cash aside. This could be a pot of money, a bank account or a jam jar that you put cash into, labelled for the specific thing you are saving towards. They can work by simply putting aside money into one of multiple funds, to use that money at a later date. It breaks up the total figure you will need, into much more manageable chunks.
What Can Sinking Funds Be Used For?
There are many reasons why you might consider setting up a sinking fund. Usually it is to spread the cost of annual payments or bills you otherwise wouldn't be able to afford in one payment. Some ideas of sinking funds can be for road tax for your vehicle, insurance for your home or to put money aside for a family holiday. You might also consider a sinking fund for home maintenance, dental bills and even Christmas! It is, after all, something that comes along every year and we can plan for it financially. Birthdays too! Anything you know will be coming up and you'll have to pay for, you can set up a sinking fund to put money aside for it.
How To Set Up A Sinking Fund
Before we look at how to save into sinking funds, let's consider how to set them up in the first place. If you are doing your saving without having the physical cash on you, you can use different bank accounts to save into. Banks like Monzo actually allow you to set up different saving posts to split your cash apart and label it for different things. A lot of this can be done automatically so you can set up weekly payments to move around and then forget about it. It is done for you! This is a great way of setting up your sinking funds.
Some of us want to save the cash and physically do the act of placing it into a pot. You could put labels on old pasta sauce jars and put them in a box under your bed. How about envelopes i your sock draw, with different things written on the front. Get your cash out of the bank each week and put it into the necessary envelopes. Remember, if you do this, your money is not covered should it get stolen or go missing.
How Much Should I Have In My Emergency Fund UK?
How To Save Into Sinking Funds
You need to figure out your total goal for the year, the amount you want to save for your car insurance or Christmas gifts. You should be able to figure out a ball park number based on previous years payments. Then you simply divide that goal amount by 12 to give you monthly payments, or 52 to give you weekly ones. That is the amount you need to put aside each time you pay into your sinking funds. When you start putting that money aside, you can be sure that those payments coming up later in the year can be taken care of.
Now you know how to save into sinking funds, you can find yourself in a better financial situation when things need paying for. That's a big win!
