Sinking Funds- What are they?

Hello and welcome back to my blog.

In this post I will be talking about sinking funds, and how I use them within my budget.

I have known about sinking funds for the last 9 months, and I now use them within my budget to save money. But before I get into how and why I use them, I should probably explain a little bit more about what they are.


A sinking fund is simply a strategic way to save money by setting aside a little bit each month.

https://www.everydollar.com/blog/what-is-a-sinking-fund

A sinking fund is simply a way to save little amounts of money over time. I use them as a way to save for a variety of events throughout the year, for example birthday’s, Christmas and holidays etc.

You can also use sinking funds to save for bigger purchases such as a new car, new furniture or any household items. If you own your own home, I would advise having a sinking fund for house maintenance in case of any unexpected problems. For example your heating breaks down, you will need to pay for this to be repaired which could cost thousands of pounds which you do not have. But if you start to save money for these types of situations there will be no panic about how to pay for it.

I have found this method to really work for me. I have the money I need for each event which means I do not have to touch my general spending cash envelope.

What can I use a sinking fund for?

You can use a sinking fund for anything from saving for someones birthday, to saving for a new car. A sinking fund is a saving for anything that isn’t in your monthly budget.

The most common sinking fund is a Christmas fund. How much money do you spend at Christmas? Can you afford to spend this amount of money all in one go? If the answer is no then you should start a Christmas sinking fund.

Make a plan in January and work out how much money you need to save eg £500. If you start your Christmas shopping in November that gives you 11 months to save money for Christmas.

So on average you need to put away £45 each month away to reach your goal of £500.

Putting this amount of money away may seem slightly nerve wracking but when you are able to do your Christmas shopping in November without using your monthly spending allowance it feels amazing. This also allows you not to tun out of money in January as so many people do.

So how does sinking funds work?

At the beginning of the year, make a list of things you would like to save for:

  • Family, friends Birthdays
  • Any special events (Anniversary, weddings, Christmas etc)
  • Holidays (Big holidays that require a lot of savings)
  • Yearly payments (Bills that can be paid yearly if you wish)
  • House Maintenance (redecorating, DIY,house repairs etc)
  • Car maintenance (MOT, new tyres, car repairs etc)

Decide how much money you would like to save in a year then work out how much money you will need to save each month.

If you have a sinking fund for house maintenance, class this as an emergency fund and put as much money into this as possible.

Cash envelopes or Savings accounts?

You can keep your sinking funds in many ways, cash envelopes or in savings accounts.

I keep most of my sinking funds as cash envelopes, but my car maintenance is in a bank account as sometimes I may have to pay by card for any repairs.

Its up to you how you store your sinking funds, just remember if its cash envelopes keep them lock away in a safe.

Overall Sinking funds are a great way to save money throughout the year at a reasonable pace. I love having sinking funds as they have made my budgeting journey so much easier because I do not need to panic about paying for upcoming birthday’s or Christmas.

I hope that this information about sinking funds will help you save money towards your goals.

As always if you have any questions please ask 🙂

Make sure to follow me on Twitter, Instagram and Pintrest:

Twitter: https://twitter.com/Me1Budget

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Pintrest: https://www.pinterest.co.uk/budgetwithme4143/

Hannah xxx

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