Sinking funds are the solution you need. The passing time has made all of us understand the importance of frugal living. More people find it hard to buy a house and to pay for the college of their children. A growing consensus suggests that most individuals blame inflation and a broken economy for their lack of financial strength.
We do not disagree with that argument but solutions to this problem have to be found. That is why today we have decided to discuss sinking funds.This is not a new concept, it has been a part of modern saving techniques for the past fifty decades. So you should also try to implement them in your everyday life.
What Is a Sinking Fund?
A sinking fund is a process of putting aside a small amount of money every month in order to save a large sum of money. Rather than spending $6,000 in one month to get the roof fixed, you can save that money beforehand. So that when you do have a random emergency, you already have some money saved up.
A means that you can save up small portions of money every month so that you can pay all the dues without feeling the weight. You can save up for your kid’s college tuition for 16 years and it should be easier to pay for their college.
Why Do I Need a Sinking Fund?
There are many benefits to having a sinking fund. The process has shown great potential as a viable solution to financial problems that individuals face throughout the years.
- Have fun trips with family and loved ones without feeling like you are not being sincere with your financial situation. You can save the money so that you have money to travel comfortably and do not have to feel left out from life-changing experiences.
- Buy electronics with ease and comfort rather than buying on monthly installments. Rather than having to worry about an additional expense to be paid in the coming months, pay for the expensive electronics by yourself because you have saved ahead.
- Rainy days will be easier to endure than usual if you have saved up for them. You should have a small sinking fund for a rainy day when you need a strong financial backing and do not know where to turn.
How Do Sinking Funds Work?
The concept of a sinking fund focuses on saving for more than one reason. Most people save money and then they are asking around for how to spend it. That is not a wise manner of saving your money.
The sinking funds mean that you make a list of items and services that you need the money for. Here is a small example of such categories:
1. Home Ownership:
You can focus on saving money so that you can put down a payment for your home and get out of renting an apartment. Rather than saving money for buying a home, you simply save money to pay the down payment, and rather than paying rent, you pay the installment fees.
2. College Tuitions:
It is a sad state of affairs that our kids have to pay off their college loans. If you can save small amounts of money every month for their college tuition, then you will be able to keep them debt-free. That will be the most significant financial strength you can provide to your children.
3. Car Loans:
Rather than taking out an expensive car loan that you will have to pay back with interest, simply save up the money beforehand and make complete payment upfront. That is a big task and you will save up for months in advance, but it can certainly free you.
4. Travel Plans:
Traveling on debt is the worst idea a person can ever have. You come back from a trip abroad and now you have to pay back the money. A good solution to the problem is to save money and travel with your own savings.
5. Medical Bills:
If you have an illness or pregnancy coming up, it is good to save up money for the medical bills that you can expect. If you have a large family, then it is also wise to save up simply for a rainy day and any unexpected health problems you have to manage.
Why won’t a generic savings account do the trick?
Most people save money for the sake of saving money. The problem is that the strategy of saving the money you didn’t get to spend in a month will make your saving look large. You will feel like you have a lot of money and you do not know what to do with it.
But if you focus on saving small portions of money for various reasons, then you will find that you are growing in strength. Saving piles of money is the worst idea as money devalues with time and unless, all of your important needs are met, investing it is also not the best option.
The best option is for you to understand that the process of developing becomes mundane and unimportant unless you are saving for a cause. If you are going to save money, break it down into small portions that you are saving for various important reasons.
How many sinking funds should I create?
You should create as many sinking funds as you need. We have listed all the important categories of a sinking fund and you will see that most of them apply to your life. The more you save in your sinking fund, the better prepared you will be for the financial obligations that are coming your way.
The reason, it is better to have a sinking fund is that most individuals have no financial savvy to decide which investments are in their best interest. They are trapped in a situation where they have to understand financial investments or trust someone else to grow their business.
If you have completed all of your financial obligations, then investments are a great idea. But if you are looking for financial stability then investing your money is not too wise. Unless you know of the next Apple going public, no one can suddenly triple your money.
But they can take away an important saving from your financial assets and you will not be able to achieve anything in the end. None of us are aiming to be the richest person on the planet, all of us want to be able to pay our bills and make sure that we own our house.
A good understanding of the sinking fund will allow you to see that you can have all the financial independence that you always wanted without any need for unnecessary credit or risk. Imagine a world where you do not have car loans, home repair loans and virtually any other loans to pay. The only financial obligation you have is the house mortgage.
That can only be achieved if you stay one step ahead of all the financial obligations that are coming your way. You will save a considerable amount of interest money and will have control over how you want to use your money if you do not tie it up in a long list of monthly payments.
Where should I store my sinking fund?
The truth is that the modern financial management software apps like My Easyfi are ideal for you to save your sinking funds. The distribution of money, how much money is saved and how much is left, are all arduous and complicated aspects. You will end up doing an endless amount of mathematics every month, not to mention, will need to collect many envelopes.
The modern financial management softwares allow you to see the simple break down of how you can save your money by making sure that you are dividing it up according to plan. My EasyFi app comes with a pictorial break down where you can see how much of the money is saved for a cause, and how much more you will need to save.
My EasyFi allows you to sync your app with your bank account. So that you can see how much of the money in your bank account you can use for different saving plans. With My EasyFi you can distribute the expenses and have a good saving in your bank.
The main focus of our discussion is to show you that there are ways to live a debt-free life. Rather than going for bank loans and credits for every need, try to save up money. That way, you will not have a high interest in your financial commitments and will be able to enjoy life comfortably.