You use a sinking fund to accumulate cash to pay for something at a future date.
Examples could include:
The idea behind a sinking fund is to spread the cost of what you will be buying in the future over the income received during the months between now and when the purchase will happen.
Below are the steps for manually creating and using a sinking fund set-aside schedule. Later, in Chapter 4, we will look at how much easier it is to use sinking funds in Income Companion.
Establish the Objective
If the set-aside amount is not doable, rethink the parameters. Make adjustments until you are comfortable with the set-aside amount.
Make A Plan
Create a list or spreadsheet with the sinking fund name at the top. Add columns for the:
On each set-aside day, add the set-aside amount to the safe place where you are accumulating your sinking fund money. Check off the date on your list or spreadsheet.
Enjoy Your Progress
As you check off each step in your sinking fund plan, you might want to take a moment to sit and stare at your progress. Smiling is optional, but highly recommended.