How Sinking Funds Can Take the Stress out of the Holidays

Holidays can be financially stressful, but using sinking funds throughout the year can make this season so much easier…

 

 

While many of you may not be thinking of the holidays yet, there are some that have already done their Christmas in July shopping (hello, Amazon Prime Day!). But for those who have been thinking about the upcoming shopping – and stressing over it –  I wanted to share a way to make this holiday season easier. That way is sinking funds.

 

What are sinking funds?

Sinking funds are when you set aside a little bit of money each month, or each paycheck, to pay for a larger expense. In this post, I’ll be talking about the holidays, but sinking funds can be used to finance back to school expenses, a wedding, or a family vacation. You are saving a set amount of money for something that is hard to pay for in one big chunk.

One of the most stressful parts of the holidays is the price tag attached. We often spend money we don’t have, racking up credit card debt, to pay for gifts. Black Friday deals don’t always coincide with paychecks and so we put everything on our cards, intending to pay it down in January. But we’re not always successful.

Sinking funds can take a lot of this financial burden away. Here’s how…

 

 

How Sinking Funds Can Take the Stress out of the Holidays

[Disclaimer: This post may contain affiliate links. Please see below for more details]

 

Decide what you need a sinking fund for

Are you creating a sinking fund for one big holiday purchase, or do you want one to cover all the gifts you’ll be buying? How much do you need? I usually create a sinking fund for a set amount of money per child. Say you plan to spend $200 on each of your 3 children. You will need a sinking fund of $600 to cover that holiday expense.

 

When do you need the money by?

This money might be for the holidays, but you’ll need it before then. If you plan on taking advantage of some Black Friday deals, then you’ll need your money by the end of November or earlier. Will you need to ship some gifts? Also keep that in mind when you are planning for when you’ll need your sinking funds.

 

How much will you need per month/paycheck

Now you’ll need to see how often you’ll be able to contribute to your sinking fund. Will you do it on a monthly basis, a weekly basis, or per paycheck? This will depend on how your income works. We get biweekly paychecks, so our sinking funds are added to when our paychecks come in.

So if you are saving $600 for children’s gifts and you would like the money in time for Black Friday, then you have about 10 weeks from September until November to save the money. With biweekly paychecks, that means you’ll have 5 paychecks to save the money. $600/5= $120 from each paycheck will need to be contributed to the sinking fund.

 

Where will you store this money?

Some people like to use the envelope method, storing cash at home. Others create a savings account that is used just for this purpose. I’ve found that when I have multiple sinking funds for different things, I like to use a coupon organizer to hold cash or tallies while the money sits in the bank. Just remember that if the money is in your bank account, it’s not to be used for other things. That would defeat the purpose of having this fund.

 

Stay on budget

When you finally are ready to spend your sinking funds, make sure you stay on budget. Keep track of the money you have and how much you spend to make sure you don’t overspend. I know those holiday deals are tempting, but if you find that you didn’t have enough money in your sinking fund, use that knowledge for next year. Now you know what you need to set aside for the next holiday season.

 

When should you start?

Ideally, you should start your holiday sinking fund in January to give yourself the most time to save. While that takes some discipline, you have to save much less from each paycheck. On average, there are about 20 biweekly paychecks between January and Black Friday, meaning you would only need to put away $30 per paycheck to reach your $600 goal. Not too difficult.

But you can really start your sinking fund anytime and go as long as you need to. The point is that you are pre-saving for something rather than spending money you need for other expenses or borrowing with interest when using a credit card.

If you must use a credit card, put your gifts on one and then immediately pay it off with your sinking fund. This is a good strategy if it helps you take advantage of cash back offers. But don’t let the holidays add to your card balances. That’s no way to start the new year!

 

I hope this information on holiday sinking funds gives you some ideas on how to stay on budget this holiday season. This method is so useful and really takes the financial stress out of gift giving!

 

Looking for more on budgeting and the holidays? Check out these posts:

How to Manage Holiday Stress & Spend Less

How to Homeschool on a Shoestring Budget

Budgeting with an Inconsistent Income

How to Take the Stress Out of the Holiday Season

 

 

[Disclaimer: I am a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for me to earn fees by linking to Amazon.com and affiliated sites. This post contains affiliate links, which means that if you click on one of the product links, I’ll receive a commission, at no additional cost to you. All opinions are my own and I never recommend anything I haven’t used myself and loved.]