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 🙂

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Hannah xxx

All you need to know about the cash envelope system!

I have been using the cash envelope system since September 2018 and it has not failed me yet. I discovered the cash envelope system on YouTube when I saw so many people use it as a way to track their spending and savings.

But what is the cash envelope system?

The cash envelope system is simply a way to divide your spending into different categories. These categories can be anything that allows you to pay for things in cash. For example I only use 3 cash envelopes for my spending, these include:

  • Spending (Dates, days out etc)
  • Food (Meal prep, eating out etc)
  • Petrol

All of these I can pay in cash with. For me the cash envelope system is a visual reminder of how much money I spend. When I used to pay with my debit card I took it for granted and didn’t think much about what I was spending. It wasn’t until I had my bank statements through I realised that my money is going nowhere, I was wasting it.

From that day on, every month I budget an amount for each envelope and do not change this, unless there is an event or something that requires more money.

Here is an example of much I budget for each envelope:

  • Spending: £100
  • Food: £80
  • Petrol: £60

The only way the cash envelope system is going to work is if you have a budget in place. If you just make up numbers and do not follow a budget this system will not work, the whole point of this system is to keep you accountable for your spending. 

Here are my rules for using the Cash Envelope System:

  • You need a budget!

Plan your budget before you even think of using this system. You need to figure out how much you are going to need in each envelope. I did a practise month to see if what I was putting in my envelopes was enough money or too much money. The first month I done this I did not put enough money in my petrol envelope which meant I had to borrow from my other envelopes!

  • Create your Cash envelopes.

At the moment I only use normal white postal envelopes as it’s easier for me. However, there are many websites that have cash envelopes, the best one is Esty (https://www.etsy.com/uk/market/cash_envelope). There are hundreds of amazing designs that you can choose from.

These are my 3 ‘spending envelopes’
Image is from: https://www.etsy.com/market/cash_envelope
  • What are you going to use your cash envelopes for?

You need to decide what you are going to use your envelopes for. Are you just going to have some to track your spending? Or create ones for your bills? I personally only use cash envelopes to track my spending and also to save money for various events throughout the year. I keep money in my bank account for all my bills as for me it doesn’t make sense to draw the cash out to put it back into my account before the direct debit is due. But the decision is yours!

  • Do not borrow from other envelopes!

This is a major rule! You cannot borrow from other envelopes. For example if you are getting low on your spending envelope you can’t take money out of your food envelope. The whole point of this system is to make you aware of your spending. So if you’re running out of money from a certain envelope then you need to either budget yourself more money or find a way to cut your spending for that category. For the first few months you try this you will make mistakes. But stick with it, believe me it’s all worth it.

  • Keep track of your cash spending.

For me this is another important rule, I have created a spending tracker that keeps me accountable for all my cash spending. (See picture bellow) This keeps me motivated every month as it makes me realise how much I am spending. I recommend that you do this as well.

I hope that these tips have inspired you start the cash envelope system. I cant recommend it enough, it will take a bit of work but it is so worth it.

Since starting the cash envelope system I have saved so much money, it has made a massive difference to my fiances and I couldn’t be happier.

So if your like me, someone who struggles keeping track of their spending, who needs to be on a strict budget, then the cash envelope system is for you.

Please let me know if you any questions in the comments below and I would be happy to answer them as best as I can.

Below are some links to websites and videos that have helped me understand the cash envelope system.

Pennies into Pearls: http://www.penniesintopearls.com/beginners-guide-cash-envelope-system/

Alyssa Herbert: https://youtu.be/nME9Ei1Ne7U

From Pennies to Pounds: https://www.frompenniestopounds.com/how-to-make-a-cash-envelope-system-with-cute-printables/#more-3997

That is all for now! Talk to you soon 🙂

Hannah xx

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