Why You Should Start Using Sinking Funds Today

By DM Smith, on May 20, 2009

Impulse buying can be the end to all financial plans. Accounts are most likely overdrawn by the end of the month or purchase decisions are regretted. This is the reason for a sinking fund for all planned or major purchases. Sinking funds are simply savings put in one particular place for a specific thing. For example, car tags; each year a car owner must pay the tax on the registration. Each year the tags and taxes are about the same price. Allocating savings each month until the next year saves panic when that time comes. Sinking funds are a great way to never be in need of money for a must have purchase.

Sinking Funds Can Save You Money

Start a sinking fund for an item that you want instead of succumbing to impulse buy is a great way to save money. For example, instead of buying a camera on impulse, you start a camera sinking fund. Later, you may find that the camera you wanted a few months ago (as an impulse buy) is not the camera that you want now — e.g., there is a better camera for a cheaper price. Even if you still want the same camera, you may find that it is now on sale and there is money left over from the camera sinking fund to spend or save at a later time. Here are some sinking funds ideas: car repairs, home improvement, vacation, Christmas and other gifts, emergency funds, and maybe even a “blow money” fund. Blow money can be used for whatever may come about.

Sinking Funds Is Not New and It Works

Sinking funds have been around for decades. One hundred years ago, cities’ entire budgets were run off of sinking funds. Some states still have these funds, called “rainy day funds“. In a time of financial crisis such as a recession or depression, these governments may use these funds to help ease the expenses of every day government, or use it to keep government employees paid.

It is time to go back to an older way of thinking about money, time to follow the examples of our forefathers and stop living off of credit. Our irresponsible borrowing and lending has put this entire nation at risk of another depression. If more people followed these examples, more people would be better financially prepared to weather financial emergencies.

Where To Keep Your Sinking Funds Money

Once you begin to save for these funds, you must decide where you are going to keep these funds. Some cash funds can be categorized in envelopes and kept in a safe or a safety deposit box while other larger funds can be placed into allocated savings plans. One idea is to find a good online bank where you can set up several savings accounts, specified for different funds with no minimum requirements. Starting early enough, no purchase will be unplanned and there will never be panic for unavailable funds.

Start Using Sinking Funds Today

Lets all follow the examples of the past, before there were 401(k)’s and banks that would lend money for anything while charging 30% interest. Freeze your credit cards or cut them up if you have to. Buy a safe and start paying with cash. Save more and buy less. Never allow another financial crisis to put you further into debt. Start using sinking funds today.

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DM Smith is the owner of Dmsmithblogger's Blog. She likes to follow an old school way of financial thinking and is dedicated to helping people find their way out of financial crisis and identity theft. She also enjoys history of the United States, particularly the South. Please visit her at http://www.dmsmithblogger.wordpress.com and subscriber to her RSS feed

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