It's challenging to cover a significant expense in a short duration. A well-established sinking fund helps shield life's unexpected events, protects your financial goals, and promotes better budgeting.
A sinking fund is a cash reserve in your account that holds calculated funds for future expenses. This account is separate from your regular checking, savings, and emergency fund.
The purpose of a sinking fund is to have enough liquid cash savings to cover anticipated expenses. A sinking fund supports costs related to life events and assets.
Now you've realized a sinking fund is necessary, you need to set it up separately from your checking account. Follow the three steps below to build your sinking fund.
Determining how to save money for sinking funds depends on the fund type, income level, and how you generate income. The best method to build a sinking fund is through the automatically scheduled transfer of your income.