What it is, why you need it, how to do it.
What it is: A savings account for known non-monthly expenses. Any expense you can reasonable predict but that you don’t get billed for monthly. Car insurance for example. What it’s not for – emergencies, fun things etc. This is not the savings account you use when your car transmission dies or when you want a new dress.
Why you need it: So you aren’t late with bills. So you aren’t stressed when you realize that you have a car insurance bill due next week. To be prepared for the expected expenses.
How to do it: figure out all non-monthly expenses for the upcoming year and set aside money each payday into a dedicated savings account.
What to account for:
- HOA fees
- Car insurance
- Car registration
- Christmas, birthday and other gifts
- Medical deductible (use a H.S.A. to cover this if you can)
- Property tax and homeowners insurance if mortgage is paid off
- School tuition
- Water and Sewer bill if not monthly
My Real Life Example
High School Homeschool Tutor Fees $5,000
Property Tax $5,000
Homeowners Insurance $1,300
Quarterly Water Bill ($350 every 3 months) $1,400
Car Insurance $1,200
Car Maintenance $500
Divided by 24 paychecks = 600
Every payday I have $600 automatically transferred into my Sinking Fund Savings Account.
I have 3 different savings accounts at Capital One 360: Sinking Fund, Emergency Fund and regular savings account.
I use the sinking fund for the above expenses. The emergency fund is used for the unexpected…water heater dies, roof gets a hole, you forget your wife’s birthday and need to buy your way out of the doghouse. The regular savings account is used for whatever we want…night out, weekend away etc.