Personal Finance
August 29, 2018

What Are Sinking Funds and How Can They Help You Stay Out Of Debt?

Written By Mary Beth Eastman
Last updated August 29, 2018

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Sinking funds are essentially funds that are created to help people save money on future expenses. This includes periodically setting money aside for gradual repayments of outstanding debts. Similarly, these funds are also designed to replace the value of wasting assets.

Sinking funds are set up by economic entities by setting aside revenue over a period of time. This may include new or existing companies, along with hospitals, municipalities and even federal agencies. These establishments save certain monies and revenue to fund future capital expenses or investments. Similarly, these funds are used for repayment of long-term debts, and are truly an effective way to get your finances and credit ratings back on track.

Sinking funds are just not for economic or commercial entities. In fact, anyone who is looking to save money – and get out of debt – can form a sinking fund for themselves and loved ones. For example, with the holidays not too far away, you can easily set up a holiday fund for the upcoming, larger expenses and purchases. It’s as simple as sitting down with your family, and going over how much money you earn in a month, what you all owe, and how much you can set aside.

The next step is to estimate how much the expenses will be during any time of the given month or season. This gives you a solid structure to save money stemming from paid jobs, salaries, stock earnings, investments, bonds or other monies. With these funds, however, no one in the family can touch these monies for other expenses. They should be targeted towards getting you and yours out of debt, or simply to have enough funds for gifts, family vacations, medical expenses or more.

Sinking funds can accumulate into true savings for families and loved ones. However, it is important to stay on track of how much money per day, week, or month goes into a fund. Use an online financial planning tool such as Personal Capital or simply jot down the beginning and ending balances of the sinking fund for optimal results.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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