Budgeting bliss: 9 Must have sinking funds categories

Sinking funds are the not-so-secret sauce of financial planning, enabling you to take control of your money and navigate your financial journey, whatever that might be confidence. In this post, I’ll answer the question “What are some must-have sinking funds categories“

I’ve been using sinking funds for a few years now and my preferred method of managing them is automatically, through the Plum app.  

Looking at my history, it says, that since I started using the app I’ve put nearly 10.5k into my various pots. Of course that doesn’t mean that there is still that amount in the pots as they have been used but, I would say that is some accomplishment, seeing as that this is money that came out of my bank account without me really missing it.

So what are some must-have sinking funds categories?

What sinking fund categories and goals you include should be personal to you, but if you are struggling to think of any that will have any meaningful impact on your finances, here is a list to help you.

Christmas

If you leave it to the last minute Christmas can very quickly become an expense that you carry with you into the new year, 

Use: Christmas dinner, presents and drink.

Birthday

Birthdays come around like clockwork, so set yourself a budget for each person that you buy for and start adding that to your birthday sinking fund.

Use: presents, food, parties, days out.

Motor expenses 

Owning a car is expensive, so whether it’s your car insurance, MOT, road tax or any other known vehicle expense a sinking fund is just what you need to ensure that these expenses are manageable.

Use: Insurance, MOT, servicing, breakdown cover, road tax, tyres and car parts.

Children

Seeing the cost of childcare always brings a tear to my eye, but the strain of this is decreased by having a sinking fund for it.

Use Childcare, clothing, school trips, extracurricular activities/hobbies.

Holiday 

Our holidays are essential for relaxation, creating lasting memories and for our mental health. A dedicated fund ensures you can enjoy getaways without accumulating credit card debt.

This could you used to pay for the holiday, day trips or nights out.

Home expenses

Our homes require ongoing maintenance and insurance to ensure that we are covered should anything unexpected happen.

Use: Decoration, insurance, home furnishing, remodelling

Yearly subscriptions

We live in an age where you can get almost anything on a subscription basis, but these subscriptions often cost more if you decide to pay monthly rather than annually.

Pet expenses

While our pets bring a lot of happiness into our lives they also come with ongoing expenses. A sinking fund for pet-related costs ensures you can provide for your furry companions without financial stress.

Use: Veterinary care, insurance, grooming.

Life events

Life events like weddings and births, can come with significant expenses. A sinking fund allows you to celebrate these without financial strain.

Use: wedding outfits, catering, venue, honeymoon, decorating your child’s nursery, cot and pushchair

How to organise your sinking funds

Where you should keep your sinking fund depends on your financial goals, preferences, and how accessible you want or need the money to be. 

Separate savings account

One of the most straightforward options is to open a separate savings account specifically for your sinking fund. Many banks offer the ability to create multiple savings accounts, making it easy to track your progress toward various financial goals.

To find the savings account with the best possible rates you should check out the MoneySavingExperti’s savings account table.

Online banks

Online banks will typically offer competitive interest rates on savings accounts and often have lower fees than traditional brick-and-mortar banks. Consider an online bank for your sinking fund if you’re comfortable with online banking.

Whether you choose a challenger bank like Monzo or an established bank like Natwest, they will offer the option of opening savings pots where your money will earn varying levels of interest depending on whether you’re saving for something in the long term or short term.

Apps

I’m a big fan of Plum, but other apps do the same thing so you might also want to check out Chip.

Both use AI to calculate how much you can afford to put into your various pots and move this for you, alternatively, you can do this manually. 

Cash envelopes

Sinking funds aren’t really a new concept as many people have been saving for specific goals for a long time using the cash envelope system, whereby you withdraw the money from your bank and place it in individual envelopes for your goals.

This has to be a method that I would personally avoid because 1) I wouldn’t want money lying around the house and 2) access to a bank can be limited.

How do you decide how much you need to save in your various sinking funds?

Determining how much you need to save in your various sinking funds requires careful planning and consideration of your financial goals and expenses.

Here is my tip for ensuring that you have the appropriate savings amount to meet your sinking fund goals:

1. Identify your goals
2. Estimate the costs
3. Determine how long you want to be saving for your goal
4. Breakdown the cost
5. Prioritise your goals
6. Automate contributions

Discipline is very important when starting sinking funds to meet certain goals as it can be tempting to dip into them when you have accumulated the goal amount and it is sitting there waiting for the expense to arrive. 

Conclusion 

By identifying the right categories for your sinking funds, making sure that they are stored in the right place and following my tips on calculating how much you need for each fund with discipline, planning, and consistency, you’ll be well on your way to mastering your finances and achieving your financial aspirations, one sinking fund at a time.