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The Sinking Fund - Staying Afloat with your Expenses


This essay is an introduction to what most people do not use. The reason I say "do not use" is because the majority of people who make purchases do so on impulse, or really, really, REALLY short notice. It takes effort and elephant-sized willpower to be able to use the sinking fund correctly and efficiently, but it makes a dinosaur-sized positive impact when used. Here is my definition of a sinking fund:

A Sinking Fund is a term I learned from other personal finance activists online, which basically means a budget bucket used for a PLANNED purchase.

The keyword here is PLANNED. I say this with great value, because the ones who do not win at this whole game of personal finance are those people who make purchases and transactions that are UNPLANNED. In my opinion, the only unplanned transactions you make are those that come from emergency situations. A blown tire or a leaky faucet - those repairs are unplanned and if you've built up a solid cushion for an emergency fund, you would hopefully have the funds needed to cover. Well, in that case, I guess those unplanned scenarios would technically be planned from an emergency fund.

I take it all back, NO UNPLANNED PURCHASES. Back to the Sinking Fund.

The Sinking Fund may be a purchase of any size: A new pair of shoes, a fishing pole, a car - any worth of money that you feel will impact your budget plans for the month or upcoming months. Similar to how you would budget for groceries or entertainment, you would create a new bucket and put away an amount of money for that purchase until you have saved enough to buy it. Here are the main reasons why having a sinking fund is beneficial for any purchase:

  1. It allows you to take the time to think - When you see a fresh pair of shoes in a shop, and it instantly appeals to you, you have that spontaneous urge to pull your wallet out and ask for you size. Some people end up buying it, wearing it for a few months, and it goes right back into the rotation of your already-worn shoes. It becomes just as valuable as anything else, and that's putting it lightly. Some people don't even end up utilizing that purchase as much as they thought at the few moments before getting it rung up. Forcing yourself to stop and spend time to slowly build up the necessary funds allows you to take a step back and analyze why you want what you want. It also allows you to validate your purchase, and confirm that you want to own it that badly. This creates the mindset shift from a WANT to a NEED. Whether it be a need for mental sanity, or a need because your current pair of shoes has holes with your toes poking out, it becomes something you must have.

  1. It doesn't "break the bank"- Too often people spend their money in such an unwise way, that they spend quite a bit of time trying to save up money just to "cancel out" that foolish purchase. For example, spending a thousand dollars on a new credit card just to take advantage of new redemption offers or signing bonuses - in the end you're left with a nice sum of initial credit card debt with free travel miles. Big whoop. You're not travelling anytime soon, not with that debt. With a sinking fund, you're slowly putting your money away, while keeping everything else in your budget as constant and flowing as possible. You're not making a huge uproar in your wallet, and as a result, your purchase at the end of a sinking fund will be a nice, smooth transition.

  1. It is FLEXIBLE - This is my favorite benefit. A lot of times, I personally have gone through phases in my life where one day I'd want a fishing pole, and the next day I'll want a new set of car seat covers. Totally polar opposite things, but one thing that remains the same is it all has a price tag. Having a sinking fund will keep things flexible, regardless of where your mind is at. If you're putting some money aside for a specific purchase, and one day you decide you don't want it anymore, the worst thing that can happen is you find something that you want to take its place. Then you're left with saving money for that instead. And that's a great thing - you can shift your targets for whatever brings you joy without actually spending money. Think of it as window shopping in your head. Most of the time, I actually don't want to buy something after putting away 80-90% of my money into the fund, and I just sit and admire the fact that I have just random money sitting for literally ANYTHING I WANT. It's an awesome feeling.

The Sinking Fund is every spenders' worst nightmare, but when used correctly, can easily be your best friend. It will help to ease you into lavishly spending money and blowing your wallet on random trinkets, and will develop your financial muscle to be able to analyze what you should or shouldn't be spending your money on.

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