Budgeting isn’t only about getting enough money each month to cover the bills. It’s also about and planning for the future. While you should have an emergency account, the best way to be smart about saving every month is to establish different categories of sinking funds.

Sinking funds enable you to put aside money every month for specific items. In this text, you will learn about the various categories of sinking fund categories. These can help you build out your budget and save wealth.

Why do sinking funds categories matter?

The purpose of a sinking fund is to put aside money for one-time or irregular expenses. This could include future expenses or expenses that are overdue. The funds should be divided up into categories.

For example, if you have an upcoming wedding, instead of charging your credit card for the event, you could set a specific amount of money aside to achieve your goal. That would come under the heading “Wedding” within your sinking fund.

Categories are important because they ensure that the money gets allocated to what matters most in your sinking fund.

Some of the benefits of sinking funds is that you don’t have to worry about paying them all at once, and your finances stay in good order.

You put aside money from your paycheck each month (or whenever you choose) for a given financial expenditure. This is to make sure you aren’t going over budget when a large event like a wedding or birthday comes up.

Instead of spending the money all at once, you will save it slowly and stay away from taking on long-term debt.

Though 80% of Americans have a budget, setting up a sinking fund with specific categories can help you take your budgeting abilities to the next level, so you are prepared for every aspect of life.

18 Sinking fund categories

There are many sinking funds categories. They aren’t only for parties and can cover yearly expenses, car care, and wedding costs (which can be expensive), among others.

1. Transportation

Perhaps one of the largest expenses aside from housing is transportation. Whether you own a car, take public transportation, or use Uber on the weekends, it’s important to budget for transportation costs.

If you have a car, you can set up a sinking fund for unforeseen car repairs. This can cover oil changes, tire replacements, car registration, parking permits, and car insurance. You can save up money to buy a car eventually.

And if you use public transport, you can save money by setting aside money for train or bus passes or ride-sharing apps.

2. Medical expenses

In fact, more than half of Americans have accumulated medical debt, even for those who have health insurance coverage.

Even with excellent health insurance, it’s vital to set up a health savings account (HSA) or a flexible spending account (FSA) to serve as a financial sinking fund for medical expenses. An FSA or HSA helps prevent you from incurring debt due to medical costs.

3. Christmas

Christmas is a great example of sinking spending categories that come around every year. Unfortunately, many individuals aren’t prepared in advance, leading to financial problems.

Create a sinking fund for Christmas and designate it for the holiday season. You can offset your overall budget with these funds.

Determine how much you wish to spend on the holidays. Then divide that amount by 12 (or 6 or 9 if you wish to save only for part of the year). You’ll need to set aside that amount each month.

Don’t forget about things like holiday gifts and dinners, travel expenses, and decorations when calculating how much money you’ll need.

4. Vacation

Another good example of declining funding categories is vacations. You may only go on vacations a few times per year, so you can afford to plan and budget for them in advance. If you plan and save for months in advance, you will be even more prepared.

That way, you can take your trip without having to stress about expenses, so you can really kick back and relax.

5. Childcare

The cost of childcare averages nearly $7,000 a year. Childcare expenses, school uniforms, tooth and eye care, summer camps, and other expenses can quickly add up.

Some childcare-related costs may be sudden, such as when your child has a rapid growth spurt. You can prepare for this by setting up a sinking fund.

6. Braces

Not every child needs braces, but many do. Braces are very expensive, costing thousands of dollars.

If you have more than one child, it’s worthwhile to add it to the financial budget.

If you plan on having kids, start saving early.

7. Utilities

Utilities are often a needed expense that fluctuates from year to year.

For example, if you live in an area with harsh winters, your electricity bill will be higher in the winter than in the summer.

You can create a sinking fund in order to account for these moments in advance. Divide your last year’s payment by 12 months and record the average. That way, you’ll have the money in your bank account when your medical bills are higher.

8. Self-care

While self-care doesn’t have to be expensive, if you’d like to get specific hair or spa treatments, then it might make sense to set up a self-care sinking fund.

es, pedicures, laser hair removal, and other treatments can all quickly add up. By setting aside funds for these treatments, you will save money when surgery is required.

Sinking Fund Categories
Sinking Fund Categories

9. Special occasions

Special events, such as a major anniversary or wedding day, may not occur every year, but when they do, they can be expensive.

Depending on the family’s social and financial standing, events such as bar mitzvahs, quinceañeras, and weddings can cost tens of thousands of dollars.

You can save up for these one-time costs up to four to five years in advance to help spread out the expense.

10. Annual renewal expenses

Some costs arise every year, such as annual renewal fees on software or subscription services. For instance, if you own software or subscriptions that you have to pay for annually, you may have to pay such fees.

Schedule the payment due dates in your calendar so you can make allowances efficiently for anything that’s a recurring expense.

11. Clothing

Unless you do not participate in a new clothing challenge, you can include a sinking funds for clothing.

That may include regular clothing, seasonal clothing like coats or shoes, or clothing for special events like weddings or work events.

When purchasing new clothing isn’t necessary monthly, setting aside money each month can be useful when the time comes to replace old items.

12. Gifts

Birthday and anniversary presents can accumulate over time. In addition, there are costs for Halloween, New Year’s, Valentine’s Day, or any other special occasion or holiday you may want to celebrate.

This category is easy to save for, and the amounts for donations are usually lower than for other categories.

13. Home maintenance

If you own a home, you may run into the need to make some repairs and carry out maintenance. A sinking fund can enable you to plan ahead for home maintenance expenses, even when you face an unexpected plumbing bill.

It’s generally recommended that you save between 1-4% of your home’s value every year for maintenance.

You can also set up a sinking fund for specific home repairs you have coming up, or even unforeseen expenses that could occur. For example, replacing an old dishwasher.

14. Home furnishings

Alternately, budget categories for sink spending may include furniture or new appliances. An expensive couch or bed could be included. Rather than wondering where the money will come from, plan ahead.

Setting aside a little bit each month rather than paying your credit card bill is more relaxing and rewarding for your credit score.

15. Charity

If you are able to spare some funds to give to a charity or a church, you may want to save that money for use in your sinking fund account.

Even if you do not have a charity you are donating to, a sinking fund can make sure you have the funds in the event you come across a charity or cause you would like to support.

16. Tuition

Some sinking fund categories may include education costs such as tuition. Education is costly, especially for private schools.

If you want to send them to private school or save for their college tuition, then 529 college savings accounts might be a better choice than regular savings accounts.

17. Pet care

Even though our dogs and cats will need some treatment at some point in their lives, this is a sinking fund example. In addition to monthly food expenses, you should account for annual veterinarian visits, shots, and emergency veterinary costs.

Having a sinking fund set up for your pets can help you care for them without adding unnecessary financial strain.

18. Emergency fund

If you do not want to already have a designated emergency fund, you should definitely create one. In fact, you should start funding this category before any of the others.

Sinking funds are forms of emergency funds designed to help you cover any unexpected expense you were not expecting.

Generally speaking, it is recommended to have at least three to six months of living expenses saved up. You can save more or less, depending on your personal circumstances.

Sinking fund categories can help you prepare for the future!

Having a few sinking funds categories will help you manage your funds and keep you from going bankrupt.

You can save your sinking funds in a high-interest savings account, checking account, or whatever you choose. The most important thing is that you make all the calculations in advance for how much things will cost, and then save accordingly.

It can be a good idea to set up an emergency fund for any major life event, such as pet care, saving for a vacation, paying for your child’s college tuition, or your own medical expenses.


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