Did you know there are only 12 more Fridays until, you guessed it, December 24? Like everything, the holidays - and the expense of the holidays - can sneak up on everyone rather quickly. As the fall season begins, it’s a great time to consider and plan for the expenses you’ll be incurring in the last three months of the year.
If you’re new to budgeting or managing your expenses, you may not be aware there’s a simpler way to save for those upcoming expenses that may only occur at certain times of the year. A sinking fund, or a savings fund, is money set aside to pay off specific debts or help pay for upcoming, planned expenses. A sinking fund is intended to help soften the hardship of a large expense by setting aside smaller amounts of money weekly, monthly, or each paycheck.
Now, don’t let the name fool you. You aren’t sinking your funds away so that you can’t ever get to them. You’re simply socking away a little at a time in an account that’s easily accessible to help you prepare for those irregular, or non-monthly, expenses that surface throughout the year—including the holiday season.
For instance, let’s say you reviewed last year’s account statements and you calculated that you spent $2,000 on the 2019 holiday merriment. Assuming you want to start your in-person or online holiday shopping early in December, then that would give you approximately 10 Fridays to put aside money each week. Some simple math would indicate that you’d need to save $200 each week in order to have your $2,000 sinking funds available early in December. (Keep in mind, if you start your sinking funds for next year’s holiday season early in 2021, you won’t have to put aside as much each paycheck.)
Although the holidays seem to stick out as one of the largest expenses for the end of the year, don’t forget there are also other large bills that may also come up during the fall and winter seasons. Although these may vary depending on your situation and where you reside, you may consider adding these additional sinking funds to your budget:
1. Personal property taxes
2. Larger utility payments or heating expenses
3. Auto insurance if you pay annually or semi-annually
4. Holiday giving and non-profit donations
5. Holiday travel or family trips
6. End-of-the-year retirement contributions
7. Emergency funds, especially if your job is seasonal or could be impacted by pandemic