Sinking Fund: What They Are and How To Start Using Them?
A sinking fund is a strategic way to cover an upcoming expense. It could be for your family vacation, vet bills, home remodels, school books and supplies or vehicle maintenance and repairs.
Sinking funds is one of the best ways to be smart about saving money. Simply put, creating a sinking fund helps you to save money each month toward a one time big financial expense which is most usually predetermined. When you have a sinking fund, you will be well prepared before the time of expense arrives and hence, you will not be scrambling to pay for everything.
To be honest, a sinking fund may be the only missing tool that you need in your vehicle’s finance arsenal. You can easily stay on track with your savings goals while allowing your vehicle to undergo all the required maintenance activities without feeling the pinch.
I have highlighted the difference between a sinking fund and an emergency fund – why you need them and how to start.
Emergency Fund vs Sinking Fund
People often get confused between the terms sinking fund and emergency fund. However, these two are not the same.
Emergency fund is more of a general purpose fund. It can also be called a contingency fund. It is a crucial fund which you keep aside solely for emergencies. In life, it is inevitable that at some point or the other, you will have to face a crisis or an unplanned or unexpected situation. An emergency fund is something you can fall back on such a trying time. It will help you overcome any unanticipated financial shortfalls.
On the contrary, sinking funds are meant for non-emergencies. Having a sinking fund will ensure that you have enough money set aside to pay for certain predetermined expenses. For instance, vehicle maintenance is something that should not be paid off of emergency funds. Rather, it is best to create a sinking fund for this purpose.
Create a Sinking Fund for Car Maintenance
Kar Maintenance Planner: Know your vehicle’s running costs and plan for your expenses
In our Kar Maintenance Planner, there are two guides to help you with creating a sinking fund. First guide is the one that gives you the time when you need to do the maintenance. Depending on the mileage that your car has or depending on how old your car is, tracking every maintenance is key to start creating the sinking fund.
So in this guide, you can easily track things like for example, every 5000 miles your car needs maintenance or a change of filters or whatever the car needs. It will basically give you every detail of what your car needs by time and by mileage.
Once you know exactly what your car is going to need in an entire year, you can summarize all those expenses related to your car maintenance. You can easily keep aside the money every month. For instance, you may be spending 1500 dollars a month doing oil changes, filter changes, flushes, etc., so you are going to put 1500 dollars a month on your sinking fund.