How a sinking fund helps me stay on top of an important fixed expense

In 2020, I hit a major financial milestone. After diligent work and careful savings, I was debt-free. And my emergency fund had been fully stocked. With these important goals met, I was at a loss. What now?

But then I learned about sinking funds and how they can fill the gaps in your regular budget.

A sinking fund isn't traditional savings. Instead, it's money that's meant to be spent — the idea is that you already have it set aside when you need it. Writer Lance Cothern summarizes the concept as “buckets of savings set aside for significant expenses Opens in a new window..”

I don't feel guilty for dipping into one of my sinking funds. Unlike my emergency savings, I'm not setting money aside for a worst-case scenario. Instead, it's cash I know I'll need — I just want to be prepared ahead of time.

“If you've saved for something specific in the past, then you've already had a sinking fund," writes financial journalist Alicia Adamczyk Opens in a new window.. That's a great way to look at it, because pretty much everyone has saved for a goal at one point or another. Thinking about sinking funds this way makes the idea a little more familiar and relatable.

Simplii Financial wanted me to write about how I use my sinking fund, and why you might want to consider starting one, too.