Getting Comfy with Your Money

Chapter 2:
How Your Money Works
Sinking Funds

You use a sinking fund to accumulate cash to pay for something at a future date.

Examples could include:

  • New tires for your car
  • Christmas gifts
  • Wedding expenses
  • Plane tickets
  • Birthday parties
  • School books and supplies
  • Clothes for a special occasion
  • Vacation
  • Home remodel
  • Down payment on a car or house

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.

How To Do a Sinking Fund

    Establish the Objective

  1. What are you buying? – Give your sinking fund a descriptive name.
  2. Goal amount – Calculate the total amount of money you will need.
  3. Reach-by date – Set the date when you will use the money.

  4. Calculate How to Get There

  5. Set-aside day – Choose a day each month when you can afford to put money aside.
  6. Number set-aside days – Count the total number of set-aside days (months) between now and the reach-by date.
  7. Set-aside amount – Divide the goal amount by the number of set-aside days.

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:

  • set-aside days;
  • amount set aside on each set-aside day;
  • total saved as of each set-aside day.

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.

2 Good Software

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