Every time we think that we have enough money for our plans, something happens. You may be trying to keep track of even the tiniest amount, and that is great. However, there always comes an extra expense that gets in the way of your good intentions. It is inevitable. These expenses may be expected but not all of us think of saving for those. Something has to change about this annoying once a year expenses. Sinking funds can be the way to do that.

Basically, a sinking fund is just one of the many saving pots. Using sinking funds, you slowly save money over a certain period of time. Therefore, when the expense which you have slowly saved for comes, you will already have money to pay and it will not be such a burden on your shoulders. In order to begin a sinking fund, you first decide how much money you want to save and what expense do you want to save for. Then, you calculate how many months do you have before that day and divide the amount you want to save by the number of months. For example, you may decide to save up for Christmas. In that case, you know that you are going to have a year to save so you can begin the saving process with very small amounts that won't burden you.

We all need a sinking fund in order to help us with our budgeting and planning. It may not be the most exciting thing, but definitely necessary. When we become adults, we have to take all the responsibility for any financial scenario that may occur. Otherwise, everything will be last minute which makes everything harder for you, and in order to cope with this situation, you may have to use your credit card which is far from ideal. However, if you effectively use sinking funds, you won't have to worry about any of these.

There are several main things you may want to use sinking funds for. First of them is a holiday. We all need some days off, and if we don't have to get into debt for our lovely vacation, it will be even better. Another important expense that always catches us off guard is the car MOT. We all know we have to pay it once a year, so saving up in small amounts that won't disturb you may be a very good idea. You may want to save money for your bigger purchases as well. These may be whatever you have planned, maybe a re-decoration or an upgrade. The good thing about these funds is that they generally don't have a certain date and you can put them off for a little more time, so you can reach your goal by saving even smaller amounts every month. And if you still think that you can spare a little more money each month, then it is always good to have a sinking fund for expenses you cannot predict as well.

So, how exactly does sinking funds work? The ideal scenario is that each month you contribute to your sinking funds. While planning your budget, you should add a part for the sinking funds and separate your sinking funds within that part. For example, you may want to make a list similar to the list below;

Christmas – £20 a month until December

Birthdays – £20 a month, ongoing

Car – £30 a month, ongoing

Pets – £10 a month, going

You can add as many categories as you want. It is profitable to know the specific expense your money is assigned to; otherwise, some complications may occur during the later payments. For example, you may pay for your pet's care with the money assigned to a loved one's birthday. You should calculate how much you can put off in a month before setting yourself a sinking fund goal.

As to where to keep the sinking funds, you can easily use your cash envelope system by just adding a few more envelopes and assigning them to sinking funds. The biggest disadvantage of this is that you may end up with a lot of money sitting in your house. For that reason, you may look up to banks like Monzo and Starling which provide you different saving pots.