Do you need to budget for something you want to buy in the future? Get used to the idea and practice of having extra money saved and classified into different sinking fund categories.
Want to learn the secret to sound financial health? Track your expenses, control your spending and save more money. In short, make a budget and follow it as much as possible.
Budgeting is one of the most significant financial habits. Not only that it helps you save money, but it also enables you to make sound financial decisions, which can make you focus on your long-term financial objectives, have better control over your daily spending, start an emergency fund and pay off debt you may have.
Once you have a budget that you can stick to, it’s important to start building up your sinking fund categories. These are large purchases you’ll have to make in the future, where you’ll set aside money every month to save for them.
20 Best Sinking Fund Categories For Financial Peace
Here’s a list of sinking fund categories. If you have the money set aside, you will not have to resort to more debt when facing a big expense. While some categories are optional, a few are essential.
Let’s start with the essential sinking fund categories.
1. Medical Expenses
Medical expenses are a major reason many people fall behind on their budget and have to go into debt again.
A medical emergency can happen anytime, so it is better to be prepared. This way, you can cover the gaps your health insurance policy does not cater to.
2. Insurance Policy
Insurance policies come in many forms, including business, liability, and life insurance. The policies require a periodic payment, and a sinking fund can help you meet the payment requirement cyclically.
3. Home Maintenance or Repair
Homeowners may know a house’s regular repair and maintenance requirements. Something must always be tended to, even if it’s a new home.
If you have a dedicated fund, you won’t lose sleep over any upcoming issue that may pop up.
4. Vehicle Maintenance and Repair
With a vehicle maintenance sinking fund, you can tend to the regular maintenance requirements of your car. Therefore, you can ensure that your car is in good working condition.
Put some money aside in a sinking fund for regular checks, oil changes, or when you know you’ll need a tire change soon.
5. Holidays
Holidays are a major expense in every family, especially toward Christmas. Knowing that you’ve saved enough money throughout the year to buy presents gives you peace of mind. While budgeting for the holidays may seem daunting at first, it will save you much stress later.
Even if you have a sinking fund for holidays like Christmas, it may still be a good idea to try and keep the budget down by giving cheap Christmas presents or trying to get free Christmas money.
6. Birthdays and Other Occasions
Holidays are not the only time for merriment and gift-giving. Occasions like birthdays, Mother’s Day, and Valentine’s Day also call for special celebrations and gift exchanges.
So if you are planning on giving gifts around other holidays, you need to plan and save to buy gifts without putting a dent in the budget.
7. Travel and Vacations
Traveling is an important part of many people’s lifestyles. It is nice to get away and spend some relaxing time on a vacation every once in a while.
Whether you plan to visit the best beaches of Colombia or want to go on a city trip in Panama City, Panama, budgeting for a vacation will make your trip much more relaxing.
8. Pet Care
For most pet owners, their pets are like beloved family members. However, pet care comes at a cost. You have to get their food, take them to the vet for regular check-ups, and hire an occasional dog walker.
Putting aside a certain monthly amount for your beloved pet is an important sinking fund category.
9. Utility Bills
Some utility bills vary widely throughout the year, depending on where you live. For instance, your heating bill may be quite hefty in winter compared to summer. You can calculate the total bill incurred in a year and divide it over 12 months.
You can then put aside the resultant amount for the utility bill regardless of the actual bill for that month. This way, you will have enough saved up for the months when the bill is more.
10. New Furniture
The worn-out sofa in your living room needs to be changed, and you cannot buy a new one. While it is best to search for the best prices before zeroing in on a certain piece, you also need to have a sinking fund for your new furniture.
With this sinking fund, your budget will be protected, and you can buy a new sofa without bending the budget.
11. Personal Care
Personal care is the key to good mental and emotional health, and the time and money you invest in personal care are one of the best investments. If you find it hard to manage your personal care in your busy routine, you can set up a self-care sinking fund.
These could include diet and fitness plans, gym membership, yoga or Zumba classes, therapy sessions, spa visits, etc.
12. Back-to-School Expenditure
It’s that time of the year again, and while you can use a few things from last year, your child will need many new things for the new school term.
Suppose you have already put aside a certain amount sporadically in anticipation of upcoming expenses. You will be able to manage the expenses easily.
13. Education
Whether you want to save for your child’s college education or a private school, you will need a sinking fund to have enough when the time comes.
14. Charity
Giving back to the community or helping those in need can be a gratifying experience.
What better way to incorporate this practice than having a specific fund for charity or giving to certain causes or people in need?
15. A New Car or a Gadget
Having a separate sinking fund category for buying a new car or gadget like a laptop can be a great driver to encourage you to save or devise ways to improve your savings, which you can put in the sinking fund.
16. Make a Down Payment For a New House
While some people spend most of their lives in rented houses, others dream of someday having a house. If you, too, aspire to have a house and are figuring out how to go about it, the first logical step would be to set up a sinking fund and save enough until you can make a down payment.
You can later pay the installment by planning your budget.
17. Home Remodeling
Home revamping is a huge undertaking, and you cannot take the expenses for the project out of the standard monthly budget, which is where a sinking fund comes in.
18. Subscription Renewals
If you have any membership or subscription renewed yearly, you must plan to cater to the upcoming renewal fee bill.
19. Children-Related Expenses
If you have children, you may have to cater to various expenses related to your children regularly. These could include swimming or tennis lessons, a new laptop, gadgets, or braces.
Set up a fund today and thank yourself later.
20. Tax Payments
A sinking fund category for your periodic tax payments and federal income or annual state taxes is a very smart idea. It will save you from losing sleep over impending tax payments.
Budgeting Apps to Plan Your Sinking Fund
You can put up a savings account and accumulate all your sinking funds’ categories in that account or set up sub-accounts if the bank offers the facility. You can also keep money in separate envelopes according to the categories.
You can also try to use a suitable budgeting tool or app to help you set money aside. Some suggested budgeting tools you can try:
- Mint – a free online personal finance management tool that tracks how much you are earning and spending. Check our full Mint review for more information. You may also check YNAB vs. Mint and see which budgeting tool fits you.
- You Need A Budget (YNAB) – a financial budgeting tool that uses 0-based budgeting. Check out our full YNAB review for more details about this platform.
Start My Free YNAB Trial Today >>
Ways To Raise Money For Your Sinking Fund
What if your current income only caters to your essential requirements and does not allow you to save? Things will be easier to plan if you have a specific amount to save and a timeline to follow.
There are plenty of ways to raise money for your sinking fund. You could take odd jobs or do a night shift, do online gigs if you have the knack for it, or it could be from your side hustle and a potential source of income.
Here are some money-making ideas to increase your income stream and contribute to your sinking fund:
- Participate in online surveys and earn cash or gift cards with the following platforms:
- Swagbucks. This rewards program lets you earn points, which are convertible into free gift cards or cash-backs by taking surveys, browsing the web, or shopping online. Read our full Swagbucks review here.
- InboxDollars. Sign up, start doing the surveys, join the focus groups, and earn extra cash with InboxDollars. For more details, read our complete InboxDollars review here.
- Survey Junkie. Complete Survey Junkie online surveys, share your data and be paid with gift cards or cash through Paypal. Read our full Survey Junkie review for more information.
- Start blogging. Check this guide on how to start a blog and head on to this reliable web host, BlueHost, that provides various feature-packed web hosting options to help you build your website without a sweat.
- Be an online transcriptionist. If you are good at grammar and can pay keen attention to details, you can work as a transcriptionist on sites such as GoTranscript. Try these Transcribe Anywhere courses for beginners or experienced transcriptionists.
- Play online games. If you are a gamer, this activity is the perfect side hustle. With platforms like Mistplay, InboxDollars, or Gamehag, play to your heart’s content as you earn exchangeable points for cash or gift cards.
Alternatively, you can passively invest in stocks or bonds. Check out these platforms to help you jumpstart your investments:
- M1 Finance. A stock and ETF brokerage, M1 Finance lets you invest for as low as $100. Read our full M1 Finance review and learn the services that it provides.
- DEGIRO. A brokerage firm like M1 Finance, DEGIRO is based in Europe. For more information, read our full DEGIRO review and start investing.
- Peer-to-Peer lending. Try the peer-to-peer lending platform, Mintos. Use this link for a 1% cash back in the first 90 days. Check out our complete Mintos review here.
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Frequently Asked Questions – Sinking Fund Categories
What Are Some Examples of Sinking Funds?
Sinking funds can be of many types. These include home repair, vehicle repair, medical insurance, tax payments, education allowance, personal care or utility bills, etc.
What Should Be in a Sinking Fund?
A specific sinking fund should have the requisite amount you need for the objective for which you set the fund. You can add to the fund every month or every defined period up to when you need to use the sinking fund.
How Do I Organize My Sinking Fund?
If you can save a certain amount every month, you can put it in sinking fund categories.
For instance, if you can save $1,000 every month, you can put equal amounts in various funds like home repair, vacation, insurance payments, vehicle repairs, etc.
Conclusion – Sinking Fund Categories
Life happens to everyone, and so do living, maintenance, and unforeseen expenses that come with our material existence. Whatever these categories may be, they won’t go away, so it’s a good idea to allocate a budget and set up your sinking fund soon.
So, you can upgrade your gadgets, buy that wedding gift, or get that leaking pipe fixed: make sure that you practice financial discipline, work hard on your side gigs, and keep committed to your goals.
You can make savings engaging and fun. Check these related reads:
- The Ultimate No-Spend Challenge Guide – Save More Money
- Simple 52-Week Money Saving Challenges [Save Money Fast]
Founder of Spark Nomad, Radical FIRE, Journalist
- Expertise: Personal finance and travel content
- Education: Bachelor of Economics at Radboud University, Master in Finance at Radboud University, Minor in Economics at Chapman University.
- Over 200 articles, essays, and short stories published across the web.
Experience: Marjolein Dilven is a journalist and founder of Spark Nomad, a travel platform, and Radical FIRE, a personal finance platform. Marjolein has a finance and economics background with a master’s in Finance. She has quit her job to travel the world, documenting her travels on Spark Nomad to help people plan their travels. Marjolein Dilven has written for publications like MSN, Associated Press, CNBC, Town News syndicate, and more.