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 make them free by using old food jars.

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

But I 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 not only safer, but I am also trying to increase my credit score as I want to apply for a mortgage in the next 12 months and having healthy bank balance will improve this.

These are some of the ones I have;

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

Other ones I would like but don’t have yet 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 like I’m on. The only jars I use right now is petrol, food and hair and in the bank I use Christmas, vets, pet food and car tax. For the other ones I just try and find the money when I need to. Not ideal I know but I have my emergency fund to fall back on if I am desperate.

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! This year I have consistently paid into a sinking fund for Christmas for £50 per month and this is to stop me using my credit card like I did last year (Why I put Christmas on a Credit Card This Year).

If your main priority is to be debt free like me, it makes no sense to use all your available funds (disposable income) into every sinking fund else you won’t have anything left to make those extra debt payments so choose the main ones you want to stick with and leave the rest for when your debt free.  

Here is another free printable to help you with your saving goals.