Are you looking for the best sinking fund categories for your budget? or ideas for sinking funds that might suit you?
I remember when I first heard about sinking funds, and while I'd known about the method for a long time, I'd actually never found (or even knew it had a name).
Today, sinking funds are an essential part of our budget. They keep our monthly budget consistent despite the fact our actual spending may vary significantly.
Before you start this post, be sure you have a basic understanding of sinking funds, what they are and how they work. An once you've completed this post (or before) check out my guide to organising sinking funds. So you can be sure to keep your budget neat and tidy.
That said, let's get into sinking fund categories you're going to need for your budget.
Now, I personally break my sinking funds right down to line items. I know others who just have more general/generic pots such as “travel” and put money in there for travel insurance, passports and trips.
Personally, I like to break each item down, budgeting and tracking each of these items to ensure my sinking funds are going to match to the amount required 100% (or as close as I can get it).
I'll be basing the sinking fund's categories on my method, and showing you line by line the sinking funds I have/recommend you considering for your budget.
They only need replacing every 10 years, but when they do it's upwards of £90 and with two of us that's £180.
Instead, we put away £1 a month so once the time comes we're not having to pay £180 straight out of out budget – although hopefully, we'll be buying a baby passport before we renew our own in 8 years time.
This is something we pay for annually. We have a travel blog and we travel a lot (around 3 months out of the year). Travel is without a doubt one of the biggest motivators for our financial freedom journey.
At the time of writing, we have three major trips planned;
Vegas & LA in one months time
a little last minute booking so we've only had two months of sinking funds and had to really save and get creative with making the trip work on a budget.
Walt Disney World
We booked this 12 months in advance, but we're staying on-site again with Disney Dining so it's by no means the cheapest trip. We paid the deposit, and the rest of the payment is zero interest and required by January.
We have therefore had 9 months to save and are contributing around £250 a month. Once that's paid, we'll probably use this sinking fund to save for spending money.
A trip we're taking in January thanks to some flights I won in a competition. We're there for a month, and despite only being 3 months away we've not managed to put anything into a sinking fund for this yet.
We're probably going to use the money we were saving for Vegas and LA to save for this trip once we've been to Vegas and LA (if that makes sense).
Again, each of these trips has its own sinking funds. We've calculated the estimated goal amount and divided that by how many months until the trip to give us the amount we need to save per month.
Although if we were better budgeters, we'd probably look to save for the trip prior to booking it. That's probably going to be a new years resolution.
Our house insurance is paid annually, again we estimate next years based on the following year and divide that by the number of months we're saving.
At the time our car tax was due last year, we didn't have a budget nor sinking funds in place. Therefore, we had no money saved and was left with no alternative but to pay monthly.
However, we now have a sinking fund for our car tax and as a result, will save around 10% by paying for it annually next year (removing the interest charged).
This has been a recent addition to our sinking fund list. We opt to get our car cleaned twice a year (although maybe it should be once a quarter). Although we know we could save money by doing it ourselves, we don't have the time or all of the resources right now.
The cost of getting the interior and exterior of our car cleaned is around £20, however putting this into our budget as a whole would throw us off slightly. Instead, saving circa £3 a month in a sinking fund for the cost is much more manageable.
Again you can save a significant amount of money by paying your car insurance annually rather than monthly, which often includes interest.
In order to save for our car insurance, we set up a sinking fund. Again taking the amount from the most recent year, and dividing it by the months we have to save, often 11 or 12 depending on how quickly we manage to set up our sinking fund after using it.
Car MOT & Repairs
This is a slightly different sinking fund, as we don't have a set amount based on a previous bill. We combine our car MOT (which is usually around the £40 mark) with our car repairs savings, as the MOT often leads to repairs.
However, in some cases, repairs on the car are required sooner and can be heavily unpredictable. A headlight needing replacing for example is a couple of pounds. Meanwhile, replacing an engine or having some significant bodywork done can run into the thousands.
Right now, we're not able to save as much as we like for this sinking fund. An no doubt if a large repair was required, we'd have to use our emergency fund, or look at getting a new car sooner.
When considering a sinking fund amount for car repairs and it's MOT, consider the car's age, and whether it's under any kind of warranty. Older cars are likely to have more things go wrong with them. Alternatively, a car under warranty should have the majority of things fixed without any cost to you.
Anyone who wears glasses will tell you, it's not cheap. An with something you wear and depend on every single day you'll want to invest in a quality pair (or pairs of glasses)
That's before you consider additional costs such as prescription sunglasses, contact lenses or prescription snorkelling masks.
In this case, I took the cost of my latest pair of glasses and divided it by 24 (2 years) to work out the cost I should be putting away in our sinking fund every month.
Some people choose to split Christmas and gifts throughout the year (birthdays, weddings etc.) separately. We put them all in one, but honestly, it's whatever works for you.
We price up how much we want to spend on each person, on each occasion (birthdays, Christmas, Mothers Day for example) and then divide that by 12 to cover us for the year (the amount you divide by might depend on when you start).
We like to work a couple of months in advance, so we can stock up on things that make great gifts when they are on sale.
Otherwise, it's $84 a year. We use the conversion into pounds at the time of setting the goal (hopefully it won't change too much) and divided that by 12.
We set this goal straight after we'd made our first payment for the software, so the sinking fund should be at 100% when the next YNAB bill is due.
We use Evernote to digitally store and organise our files. These include; bills, alongside other important documents for our businesses and trips.
We save money by purchasing Evernote annually, and currently, save for the total amount divided by 12 (for the year as we started straight after paying for this year).
This isn't a sinking fund we have right now, but it's one we're going to be setting up in the next 12 months. We'd like to upgrade to a king-size bed next, and we've found a rough estimate of the cost of a bed we like alongside a new mattress online at Ikea.
Sadly, with this upgrade from a double, we're also going to need new bedding and duvets as right now we have a double bed. So we've added a rough cost of this into the goal.
Research states that you should get a new mattress every 7 to 10 years, and considering the amount of time we spend in bed, I'd say that investing in a quality mattress is very important. Sadly, they aren't cheap so getting a sinking fund going for at least a new mattress always a good idea.
Right now we don't have a sinking fund for a new sofa. However, it's something we're going to need to start in the next year.
We've had our sofa for four years now. In that time it's moved house with us three times – and you can tell.
This sofa certainly isn't going to be right for our family when we look to have children in the future, so we'll need to look at pricing up a sofa we like, and deciding when we'd need to replace it by.
In this case, we might also be able to sell the sofa we currently have for some money. We'll estimate this (on the side of caution) and remove it from our total goal amount, so we're only saving for the amount we need.
Phones are expensive and can be even more expensive if you're buying them on a contract (where the phone is included).
Instead, we try to use a sinking fund to pay for our phones. We use them a lot and have found that we get the optimal results replacing them every 2 years.
This maximises the return on our current phones when selling them.
While minimising the cost of a new phone.
In this case, we take the cost of the latest phone we bought (i.e. £800) and deduct what we expect to get from selling our old phone based on the research of older models/experience (i.e. £180).
This leaves us with the estimated total sinking fund goal for a new phone, then all we have to do is divide that by 24 (for the 2 years of saving) and then we'll get our sinking fund target amount per month (£25.83)
We also apply this same principle for our laptops, except the lifespan of them tends to average at around 3-years rather than our phones at 2.
Again, you could use this formula and apply it to any of the major appliances in your home; TV's, Laptops, Computers, Games Consoles, Kitchen Appliances (more details on that below)
At the moment, we're spending a set amount in the budget for clothing. However, we're hoping to get out in front of needing to replace old items.
Once we're in a position where we don't feel as though we immediately need to replace anything we'll start a sinking fund as we like to buy quality designer clothes that cost more, compared to a wide variety of cheap clothes than need replacing often.
Pet insurance is optional, however, we recommend it and tend to purchase it as an annual policy rather than paying monthly as you tend to save around 10% (usually because of interest).
We save up for this annual amount using a sinking fund. Taking this year's annual policy, dividing it by 12 and using that amount as our guide for monthly sinking fund contributions.
Again we use the likes of Quidco or TopCashBack to get cashback on this purchase. Although we don't account for it in our sinking fund as it's just a bonus when it comes in (often weeks/months later, once all the verification of the transaction as gone through)
Right now, we're in the thick of our house repairs so we don't have a sinking fund as such. Instead, every single spare penny we have is going towards some part of the renovation.
Once completed, we'll probably break these house repairs down further to include big expenses (highlighted below) as well as keeping another sinking fund for more general non-specific house repairs.
Windows & Doors
We haven't had the exterior windows or doors replaced during the renovation. This is something that's probably going to need doing in the next 5 years or so and will likely cost us around £3,500.
In this case, we'll be looking to split the £3,500 by 5 (for the year) and again by 12 (to get a per month sinking fund amount) and therefore around £24 a month will be set aside in that sinking fund category.
We recently had the boiler replaced (urgh!) but by the time our renovation has completed, it'll be a year old. We don't have boiler insurance and don't plan to. Instead, we use the money we would pay for boiler insurance towards a boiler sinking fund.
The boiler we purchased comes with a 10-year guarantee, so we'd look to complete our sinking fund in at least 9 years (because we've already had it one year by the time we start saving for this).
However, we do hope the boiler will last past the guarantee. We'd also dip into this fund should the boiler need any kind of repairs or parts that we'd be required to pay for to fix it.
Finally, kid stuff. I don't have kids, so I'm by no means a specialist in this area. However, I'm sure there are loads of big kid expenses you could break down over a period of time to create sinking funds.
If you wanted to be really ahead of the game, consider saving £3,000 for a car for them when they turn 17. If they are only 1 year old now, that contribution only has to be around £15 a month.
Kitchen appliances can be incredibly expensive. I mentioned earlier in the post that we're in the middle of a complete renovation and we're budgeting upwards of £3,000 for the appliances we need.
As an example;
- Dishwasher – £400
- Oven – £1,000
- Fridge – £1,000
An sure, I could save money buying second-hand ones, but that's not what I want from a brand new kitchen.
An while I could probably save money buying different brands, now the kitchen is in place, there's specific measurements and styles each item needs to be in order to fit correctly.
Once we've completed renovating our kitchen, we'll probably start a sinking fund to replace these items in circa 8 to 10 years time.
In which case we'll only need to put £25 a month away (based on £3,000 over 10 years) instead of finding £3,000 one month to pay for it, or worse, buying it on credit.
Side Note: As the kitchen will probably also need replacing in circa 10 to 15 years, you might consider saving for that in this sinking fund, in the home improvements/repairs sinking fund, or in a sinking fund of its own.