Some time back, we wrote about the benefits of a “sinking fund” to make for a smoother life, financially speaking. This is a way to set aside money systematically for unpredictable-but-likely expenses, long-range spending plans, and lumpy annual expenses. (When businesses or other entities use sinking funds, it’s usually to lower the level of debt over time.)
My home is (was?) in good shape, but I knew maintenance and repairs were bound to be needed. Furniture and appliances do not last forever, either. My vehicles are in good shape, but someday I will need to pay for a new one.
To meet these needs and more, I arranged an automatic deposit into my brokerage account each month, calculated to—hopefully!—handle whatever might come up.
So far, eight monthly deposits have been made. And wouldn’t you know it, an unexpected home expense has hit.
It might have been the air conditioner or a washer or a dryer. Termites could have popped up or the insurance deductible for storm damage. But the money in my sinking fund can be spent on what is needed, when it is needed.
I don’t know precisely how much it is going to take to fix the problem, but the important thing is that it won’t stress me: the sinking fund has more than enough to cover the issue. Next year when I think about replacing some windows, and many years from now when the roof needs replacing, I’m sure I will feel the same way.
The examples mentioned here aren’t exactly emergencies, but they are sudden. They are part of the fabric of modern life. If you own a home or a car, if you have one of those fragile human bodies, if you live somewhere weather happens… this fund may help you avoid tapping into your emergency fund or resorting to expensive credit to cover something that always could-have-been coming.
So one of the best things about the sinking fund is that I spend less time worrying about the sudden expenses the fund is intended to cover. It took just a bit of thought to set up, then it flies on autopilot. I review it from time to time, and I can always adjust the monthly deposit.
Clients, if you are ready to talk about reducing the stress of unexpected expenses in your life, call or email us.
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