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Sinking Funds – Key to Winning With Money!


Spring has finally sprung! We are nearly halfway through 2022, so it’s time to start doing some financial forecasting for 2023. What big expenses do you have to pay for in first six months of next year? And have you set up your sinking funds to pay for them?

While it’s important to live in the present, it’s also prudent to plan for the future. How you’ll spend your money is definitely one of the things that you should be planning well in advance. After all, there’s a fairly good chance that your dreams and goals for your life have some kind of financial component. If you’re frittering your money away on stuff that doesn’t matter to you, then where will you find the money to pay for the things that you really & truly want?

My financial life got immeasurably better when I started using sinking funds, aka: planned spending. Doing so meant that I was saving money for the most important stuff first. When I was younger, I decided that I wanted to have money already set aside for the big, major expenses that come up every year. In my case, those expenses included property taxes and insurance premiums. I had to pay for these necessities even though I didn’t particularly enjoy them. And they were very expensive – several thousand dollars a year. By having sinking funds in place, I didn’t have to scramble to pay my taxes or go into debt to make sure I was covered in case something happened to my car or property.

Please don’t misunderstand me. There are other major expenses that definitely fall into life’s goals and dreams category. For me, travel is a huge spending category. One of my dreams is to visit as many places as I can while it’s still physically comfortable for me to do so. In the Before Times, I was fortunate enough to visit Europe several times and had been planning my first trip to Asia. Then the pandemic hit and my travel plans went on hiatus. That doesn’t mean that I don’t have a sinking fund in place for travel. Au contraire! When I feel comfortable doing so, I’m heading back to the airport and going somewhere. Flights and travel haven’t gotten any cheaper in the last 12 months. Demand for travel is high right now thanks to all the pent-up demand. I’m confident that it will settle again. At that point, I’ll be roaming the world on the money that’s been set aside in my travel account.

How to Start a Sinking Fund

My first step to starting a sinking fund was to track my expenses. I wanted to know where every nickel was going so I could project how much I’d need the following year to cover big annual expenses. My next step was to divided next year’s anticipated expense by the number of paycheques until that expense would be due. The resulting amount was the amount that would go to my sinking fund.

For example, if my insurance premiums are $2600 per year, then I save $100 per paycheque for the following year’s premium payment. (I’m not a fan of monthly debits and prefer to pay my premium in one lump-sum.) When the following year rolls around, I’ll have $2600 waiting to pay the invoice.

It’s no secret that I’m a huge proponent of automatic transfers. I rely on them to put money into my sinking funds and to re-fill the funds as necessary. Over the years, I’ve learned the following tidbit about myself. If the money is available to me, then I will spend it… and generally on things that aren’t that important to me. However, sinking funds remove this option from me. I can only spend what’s leftover after the automatic transfers have gone through!

Another little tidbit I’ve learned about myself is that it’s best if my sinking funds are in another banking institution. While I use my chequing account daily, I access the sinking funds way less often. There’s no need for me to see those dollars just sitting there. It’s best for me that they be squirrelled away so that I’m not tempted to spend them.

Goals, Dreams & Fun Stuff!

Winning with money also means that you have sinking funds in place for your wants too! After I’d successfully set up sinking funds for the un-sexy stuff, I created a few for the non-necessities of life. The things that normally threw a wrench in my budget involved fun: birthday parties, holidays, anniversaries, invitations to concerts, etc…. I want to participate in these things with my family and friends. Money is sometimes a part of those celebrations, whether it involves a present, travel, tickets, contribution to a group gift or whatever. Sometimes fun is free. Other times, it involves money. When it does, I need to have some on hand so I can say “Yes, I’ll be there!” without worrying about cost.

When you have the money, make sure that some of it is going towards your goals and dreams. You shouldn’t feel bad for wanting to achieving what your heart really wants. Maybe it’s a weekend at a creative writing workshop. Perhaps you’ve always wanted to take horseback riding lessons. Some of you might want to take culinary courses in various cuisines. Whatever it is, it’s important to you and you should try to make it your reality. You know best what would make your heart sing. I’m just here to encourage-prod-nudge you into creating a sinking fund so that you improve your odds of making those goals and dreams come true!


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