Personal Finance

How To Organize Sinking Funds

Are you wondering how to organize your sinking funds?

I love my budget, and I love sinking funds, but I like everything to be organized in a certain way. Figuring out the best organization method for my sinking funds has been tricky.

However, over the last six months, I’ve managed to really refine my organisation method. An I’m going to share my process with you today.

Where To Store Your Sinking Fund Money

One of the first questions I had was where to store my sinking fund money.

Originally, I stored the money in pots within my Starling Bank. In every increment (mainly monthly) a feature would run within the bank that would pull money from my main account into those pots.

However, when I moved to YNAB this format was more complicated than it needed to be. With the transaction taking place both in my bank, on YNAB and then hosting the sinking funds as goals on YNAB it simply didn’t work.

At this point, I decided to store my sinking funds in my main joint account with Helen. This is where the majority of our day to day banking is done. However, this is only applicable because we follow YNAB.

YNAB lets us look at our YNAB account balances, rather than looking at our bank balance to see what we can afford.

If you’re not using YNAB to budget your finances then you’re likely to be looking at your bank balance prior to making spending decisions. Therefore, it’s probably a good idea to put your sinking funds in a separate account.

Again, if you’ve got a bank like Starling where you can have ‘savings pots’ then that’s a great way to use them. These funds are often not included in your ‘main bank balance’.

You, therefore, won’t see those sinking fund amounts prior to making spending decisions.

If you don’t have a bank with ‘saving pot’ abilities. I’d instead suggest opening a separate bank account dedicated to sinking funds.

In most cases, I’d suggest simply having one account for all your sinking funds. Calculate up how much you’ll want to save per month across all your sinking funds and simply set that up as a direct debit from your main account to your sinking funds account each month.

If you’ve got pots etc. then you’ll be able to set up more personalised money transfering details based on each individual sinking fund.

How To Track Your Sinking Funds Progress

How you track your sinking funds is going to depend on two things;

  1. Where you’re storing your sinking funds (are they all together in one bank, or separated into pots)
  2. The way in which you budget.

If Your Sinking Funds Are All Together In One Account

If you’re sinking funds are all going to be going into one account and stored together then you’ll want to track them based on the total amount you’d expect in there at any one time.

You can set this up using the budgeting tool you’re using or a spreadsheet.

For example;

If you’ve got 3 sinking funds;

Car Insurance – £800 due in 3 months, therefore £266.66 a month

Home Insurance – £100 due in 10 months, therefore £10 a month

Car Tax – £150 due in 5 months, therefore £30 a month

If you’re starting with £0.00 in your sinking funds, then after month one you’d expect the balance to be £306.66

That’s because £266.66 + £10 + £30 = £306.66

If you’re starting with a balance then you’ll want to work out how you want to split this between your sinking funds and work on the monthly amounts to be transferred from there.

After month two, you’d expect the total balance to be £613.32.

That’s because you should have had a balance of £306.66 after month one, and contributed a further £306.66 based on your monthly sinking fund contributions above.

After month three you’d expect the balance to be £919.98. Unless your balance of £800 for car insurance has already gone out. In which case the balance would be £119.98.

You can even keep a note maybe again on a spreadsheet or on a small notepad in your purse what each amount within the total amount is for. For example;

Balance is £919.98

Car = £799.98

Home Insurance = £30

Car Tax = £90

Then do a quick calculation each month to ensure the totals all add up as expected.

If Your Sinking Funds Are Separated & In There Own Accounts

If you’re sinking funds are in separate accounts or pots, it’s much easier to track. You can use a calculator or set up a reference spreadsheet to check the balance of each account every month.

For example;

If you’ve got 3 sinking funds;

Car Insurance – £800 due in 3 months, therefore £266.66 a month

Home Insurance – £100 due in 10 months, therefore £10 a month

Car Tax – £150 due in 5 months, therefore £30 a month

Then based on each account starting at £0.00 after month one your accounts should look like this;

Car Insurance = £266.66

Home Insurance = £10

Car Tax = £30

After month two your accounts should look like this;

Car Insurance = £533.32

Home Insurance = £20

Car Tax = £60

Would you like to learn more about how to organize sinking funds?

Are there any other questions I can answer to help you organise your sinking funds?

Let me know in the comments below.

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