This week I want to talk about sinking funds. More specifically the way that I do my sinking fund. For those of you who do not know what a sinking fund is, it is when you take an expense that you know is coming and you break down the cost over a period of time. This could be for car registration/maintenance, Christmas gifts, an annual trip, whatever you want to break up. It is kind of like lay-a-way for expenses because you put money aside for the expense a little at a time. When the expense comes up, you have the money necessary without having to shell out a large amount from your income. People will place the money in a savings account, I’ve heard of people placing the money in envelopes, however you feel comfortable keeping the money making sure that you do not dip into those funds until the expense comes up.
When I first heard about this a few years ago, I thought this was the best thing and thought I wanted to do this. But the way my finances work, I couldn’t see how to do it. Recently, I decided to do a monthly sinking fund for three of my larger bills: car payment, PNC loan, and medical bill. These bills are the main largest bill that I have that I one bill be paying on a while (car and PNC loan) and two I want to get rid of soon (medical bill). As I stated in my last post I want to pay off that medical bill asap (November) so that I can free up that money for something else, so I’m paying an extra $100 monthly that will allow me to pay it off by the end of the year.
What I decided to do is take the payments for each bill and divide them by 4 and that is the amount that I place in an account so that when the payment is due I then transfer over/pay the bill without feeling the bite of the large payment.
So this is how it looks:
Telluride car payment: 679.14/4=169.785
I round this up to 170 and that little extra goes towards balance.
This makes the final payment equal to: 170 x 4=$680
I pay an extra $.86 each month.
Again, that’s not much, but over time it will be helpful.
The PNC loan is 289.03/4=72.2575
I round this up to $73. The amount that gets saved over the month is $292.
The medical bill with the extra $100 is: 229/4=57.25 that gets round up $58. The amount that gets saved over the month is $232.
The PNC loan and the medical bill both get saved in another bank account that I have and the total for the month for both of those bills is $524. The total that needs to be saved to make the payment is $518.03. I have an extra $5.97 each month that I have not applied towards anything yet, but I will do something with it later.
I have several bank accounts; I’ll talk about that in a later post; I keep the money that is for my PNC loan and medical bill in the PNC account. I am currently getting paid weekly, this will most likely change starting at the beginning of next year (God willing, and everything works out okay at my job). I transfer the money for the loan and medical bill weekly from my credit union to the bank. I get a deduction in my interest rate for my PNC loan if I have automatic payments on that loan and that was a quick arrangement with the payment coming from the same bank. I lucked out and got my car loan financed through my credit union, so that money gets transferred weekly into that account, no worries. It is really a relief that to be able to do things this way and I don’t feel stressed out when those payments are due.
So, that’s how I do my sinking funds. After I pay off my medical bill, I will add a new large balance bill to my sinking fund total. Are you a sinking fund fan? Let me know how you are doing your sinking fund or if you have found another way to make the payments without feeling the angst of making a large monthly payment. I’m working on some new inserts for my planner that I want to share with you guys in my next financial post. I think they are going to be really helpful for me, I’m curious to get your opinions. I’ve recently baked some really yummy things that I want to share with you guys, so I’m not sure if my next post will be about those or a continuation of finances. Let me know which you prefer. Until next time.