We live in a day and age where everyone wants everything now. What we lack in patience, we make up for in debt.
Auto and student loans in America now, both, top over $1 trillion individually, and credit card debt isn’t far behind at $780 billion.
So how do we begin to reverse these trends? It’s simple actually: stop borrowing money and start saving for big purchases!
Insert the sinking fund.
It is possible to take your time and save up for big purchases. What you have to realize is that credit card companies are banking on you not being disciplined so that they can hit you with interest and fee on top of fee for using their money. This is why sinking funds are important.
With a sinking fund, you tally up the total cost of something, divide that total by the number of months you want to save up for the item, and put that amount to the side until you have the total you were looking for.
For example, if I wanted a new washer and dryer set that costs $1,000 and I could afford to put aside $100 per month, I would set that amount aside for a total of 10 months, then go make my purchase. WITH CASH!
The best part about sinking funds, though, is that when you go to purchase the item, most of the time you’ll be able to purchase the item for less than what you originally priced it for.
Think about that: Not only do you avoid the interest, but you get the item for less. All for being patient!
So what can you use a sinking fund for? Whatever you want! I’ve seen them done for Christmas, home maintenance/renovations, auto insurance (if you don’t pay monthly), annual subscriptions like Amazon Prime, and even birthday/graduation gifts.
A sinking fund is not a replacement for an emergency fund of 3-6 months, but it can be used to cover you in cases where your emergency fund wouldn’t fully cover an emergency.
To effectively build and manage your sinking funds, you’ll need to build a solid budget first. Book an appointment with one of our financial trainers at the link below if you’re ready to get to the next level financially.