Sinking Fund vs. Emergency Fund

A Sinking fund is a way to save up for large expenses. An Emergency fund is for unexpected expenses.

What is the more detailed differences of sinking vs. emergency funds?

Lets start with a Sinking Fund. This fund is an account which you create to save for a specific expense. If you are wanting to purchase a newer car, go on a family vacation next year, anniversary gifts for friends and family, special out of town event, pet bills, holidays and other celebrations, planned home remodel project, and so on.

You can create a sinking fund for any financial goal or expense you have. You may put this money into a “savings” account, but you want to make sure you are being clear on what money is specifically for building your savings and what money is your Sinking Funds.

How do I keep track of Savings vs. Sinking Fund?

Set up a savings account at your bank, but know that this particular account is for your Sinking Funds specifically. That way you don’t blur the two and you know what funds you have for your sinking funds items, vs the money you are saving.

On your budget app or spreadsheet you can create multiple sinking funds. Label each one with a specific name as to what it is for, that way you know exactly how much money you have saved in each fund. It is very important to add your sinking fund into your monthly budget.

When you have a sinking fund, or multiple sinking funds you will know exactly when you hit your goal. For me personally, I like to have a savings account for the sinking funds and then on a spreadsheet I keep track of what money I am saving specifically for each item in my sinking fund.

Here is an example:

Let’s say I have a total of $500 split into the following five sinking funds:

What is an Emergency Fund?

An emergency fund is just as it sounds, money set aside for emergencies or unexpected expenses. These unexpected expenses could be things such as, medical expenses, job loss, replacing a broken appliance or other unexpected home repair expense, and so on.

When you have an emergency fund it will turn the emergency into an inconvenience. It will give you the power over your money regardless of how big or small the expense, and it will also remove the financial stress and anxiety of the emergency.

What are the benefits of a sinking fund?

Instead of putting the expense on a credit card and having the bill loom over your head every month, and also incur extra cost because of the high interest rates, you have the money to pay for the family vacation, yard project, planned home repair and so on.

When you have a sinking fund you can save for anything and everything. Be as specific and cover every need and want.

When you plan for those big events or projects it makes them that much for fun. You can enjoy the trip, kitchen upgrade or other projects with fun and freedom. It will make fun purchases fun, and even if it isn’t something as fun, such as new tires on the car, it will make them not a big deal.

Don’t Get Sunk

Instead of having stress and anxiety you can be prepared. Instead of going into debt, you can be prepared and pay cash. You won’t be playing catch-up, but you will be getting ahead.

It is important to have a good budget and include your sinking funds.

Saving up ahead of time keeps you from the financial stress and anxiety. Start setting up your sinking funds today.

Get help with setting up your budget and sinking funds

I hope this information was helpful to you and your family. If you would like a bit of help to plan your budget and sinking funds as well as have an accountability partner, schedule your free consultation call HERE and we will discuss the different options for working together.