Our Sinking Fund Accounts

Some time ago Jeff at Delivery Away Debt wrote about sinking fund accounts describing them as such, “A sinking fund can best be described as a pool of money that is set aside to cover future payments. Think of it as a piggy bank that you put money into and when the time comes you get to smash the little piggy and use the money you’ve been saving.”  I’ve used sinking fund accounts for my entire adult life, but I never knew there was actually a name for such a thing.

Amanda from Frugal Confessions commented to my post Tough Times at the Accountability Household asking if we were prepared for income taxes for my husband’s business and also she complimented us by saying, “You’ve done a great job at setting aside money for your other large expenses–so congrats to you!” Thank you, Amanda for the nice compliment. Your comment got me to thinking about the expenses we do save for, and I thought I would take the time to share with you exactly what we save money for each month and why.

  1. AAA. $16/month. The tow radius is 200 miles, and we can have up to four tows each year. This offers peace of mind if I am stranded, or if my husband or son is stranded, help is a phone call away.
  2. Tires for our main car. $75/month. $900 each year. I am the only one driving my vehicle, and I put from 1200 to 1400 miles on each month. This means I need tires once every two years.  I will continue to save this amount as the price of tires may increase. We are careful with our tire maintenance so we get the most out of our tires.
  3. Auto emissions and tabs.  $13/month. $150 annually.
  4. Electricity. $320/month For years I paid a set amount to the electricity company each month to build up an extra amount to cover the summer cooling costs.  Mr. Accountability thought it would be a better idea to set aside the money ourselves, instead of letting the electricity company hold onto our money.
  5. Gifts and Christmas Fund. $50/month.
  6. Auto Insurance: $105/month

The amount that we currently save each month for upcoming expenses: $579

The year before I started this blog, we did not have money set aside for anything, and we had to go into deeper credit card debt when the auto insurance came due, or when we needed tires for our vehicles.

This makes me happy to see that we are making progress like this.

Do you keep sinking funds?  Did you know that’s what they were called?

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14 thoughts on “Our Sinking Fund Accounts

  1. We live on an erratic income and I have to set aside money for items I know are coming up- life insurance premiums, possible auto repairs, AAA, etc. I even try and set aside a small portion for pet emergencies (last summer we had a $400 vet bill!) It’s so much better now that we have money in the bank versus charging these emergencies on a credit card. 😉

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  2. From my accounting background I’ve always known about sinking funds. Interesting application to personal finance though. It’s kind of like a reverse emergency fund, where you estimate what the “emergency” will be, then start saving for it, so it doesn’t become an emergency.

    Do you have single accounts for each, or do you maintain one account for all and keep a journal for where the money will be allocated???

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  3. LOL! I had no idea this had an official name. I call it “self-escrowing.” Each month I set aside $325 to cover the property tax, homeowner’s insurance, and auto insurance and another $90 for the annual Medigap insurance bill.

    How could I do without having to short myself to pay those annual bills? Let me count the ways! 😀

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  4. I have a few accounts at IngDirect but only one of them is a sinking fund for yearly expenses. The other accounts are for “wants” like travel. You set up a nickname for an account and automatically every so often – weekly, biweekly or whatever you choose – money is transferred into your account(s). Which also, reminds me: IngDirect in the U.S has a program where you can make some money by referring new account holders just like they do in Canada. I think that it could be a good fit for your blog. If you are in Canada you can use my referral ID which is 14056503S1.

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    Mrs. Accountability Reply:

    @Ryan, thanks for the information on ING, I love that they allow us to create as many sub-accounts as we wish. I wish Wells Fargo would let me do that, but they won’t.

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  5. I’ve always had sinking funds, though like Funny About Money, I called them ‘escrow’. Property tax for car and house, tags, maintance and AAA for car, estimated vet bills, clothing allowance, gifts. All in one account, but seperate on my budget spreadsheet.

    The difference between a sinking fund and an emergency fund is that with the sinking fund, you know the expense is coming and about how much it might be. I do have an efund, but it’s for things that I can’t foresee happening. For example – oil change or blown tires – sinking fund, blown transmission – e fund. or Yearly vet visit and shots required for city tags – sinking fund, dog gets ahold of something and can’t stop vomiting – e fund.

    You really do need both kinds of savings. If you are using the efund and drain it for things that are actually just yearly expenses, what will happen if you get hit by a REAL emergency?

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    Mrs. Accountability Reply:

    @threadbndr, good explanation on how this all works. I totally agree!

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