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Experts discuss using ‘sinking funds’ to help meet your financial goals

Every year, there are expenses you know are coming. From a family vacation to a holiday gift, the costs are predictable, but many are unprepared.
Published: May. 18, 2022 at 12:58 PM EDT
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InvestigateTV - Every year, there are expenses you know are coming. From a family vacation to a holiday gift, the costs are predictable, but many are unprepared.

If you are relying on your credit card or pulling from your savings each year for predictable costs - things you know you have to pay for like your homeowner’s association fee, your car tax, holiday gifts, and birthday presents - our partners at the financial website Nerdwallet researched a way to stop the cycle.

Experts there said you may want to consider using one or more “sinking funds.” It’s a savings account dedicated to a particular expense that you fund a little bit at a time with regular payments.

You would add a sinking fund to your budget for expenses that come up at the same time each year or to plan for a big purchase. For example, it could be a couch or bedroom furniture set.

Your emergency fund should be for true emergencies. The “sinking fund” has a specific goal attached it makes you think ahead and budget out $20 or $30 a month to prepare yourself for expenses that really shouldn’t surprise you each year.