What are Sinking Funds?

 Sinking funds are smaller pots of money saved for a specific goal or known future expense.

People use cash envelopes or cash jars, or you can have lots of bank accounts. I use both cash jars and bank accounts. Cash jars are good for storing coins and you can buy some pretty funky ones from the shops, but you can also keep the cost down by using old food jars.

I love the idea of cash jars because I like visually seeing my money grow.

But I also don’t like keeping a lot of cash at home because I don't think it's safe, so I opened 8 instant access savings accounts which attach to my current account. I opened these through online banking. Both cash jars and these accounts allow instant access and allow me to pay in when I want to.

I use the bank to keep larger sinking funds like Christmas and Car Tax because it’s safer. I also think having cash in your account would create a positive image for you to the bank which could be helpful if you wanted to apply for a mortgage or another financial product with them.

These are some of the ones I have;

• Car Tax
• Car Maintenance
• Christmas
• Birthdays
• Vets
• Pet Food
• Hair
• Clothes
• Pet Food
• Fun

Other ones that you could have are holidays, school clothes/trips and going out.

They are really easy to make without spending any money or very little at least. Get a glass food jar and if you don't have one you can buy the cheapest from the supermarket (when I went it was a jar of beetroot), eat the produce, wash and label. Easy! I also put the amount I want to save each month / week into the lid so I can quickly see what amount I need to put in.

I have made all of mine up but I only keep out what I'm putting into as it's easy to get disheartened when you aren’t able to put into them every month, especially when you’re on a debt free journey. Make sure you put into those essentials like food and petrol and for the other non essential jars, just try and find the money when you can. It's not ideal to not put into all of them but at least you have your emergency fund to fall back on.

If you want to know how much to save into each sinking fund jar/account, all you need to do is work out the annual cost of the category and divide it by the number of times you want to pay into it.

For example, if you are saving for car tax which is £210 a year and you want to put into the sinking jar monthly you would work it out as £210 / 12 months = £17.50

If you wanted to pay into it weekly £210 / 52 weeks per year = £4.04

If you want £600 for Christmas, you will need to save £50 a month or £11.54 a week. Larger goals like saving up £600 are easily met when broken down into smaller chunks. And having a financially stress-free Christmas is worth saving all year for in my eyes!

I would personally always round these amounts up to cover the normal increases and to make it easy to work with.

Should I have Sinking Funds if I’m in Debt?

Absolutely yes!!

By having sinking funds, it can save you getting into more debt! I have consistently paid into a sinking fund for Christmas for at least £50 per month and so far this has stopped me using a credit card like I did one year. Urgh, I also remember it took me most of the year to pay off as well.

If your main priority is to be debt free, it makes no sense to use all your available funds (disposable income) into every sinking fund or else you will not have anything left to make those extra debt payments. So choose the main sinking funds you want/need to pay into and leave the rest for when your debt free.