Let's talk Sinking Funds
What are sinking funds?
Sinking funds are funds set aside to cover an expense or debt that is coming up in the future.
Examples of future expenses
No sinking funds are not part of your emergency fund. These two things are separate.
People track sinking funds in several different ways. Some people have different bank accounts to track their sinking funds. Personally, I think tracking your sinking funds in a cash envelope system is a good idea. Having cash envelopes keep you accountable when tracking your progress. Seeing your progress each month will also keep you motivated.
What is the purpose of having a sinking fund?
Having a sinking fund helps relieve money stress on future expenses. We all know that Christmas is on the same day every year, December 25. Having money for Christmas before the holiday can relieve a lot of holiday stress. You won't have to worry about the bills you have to pay because your Christmas sinking fund is already in hand.
Overall, I think sinking funds are a good thing to have. If you're not convinced, think of an expense you have coming up and put money aside every pay period. You will be surprised at how sinking funds can change your life.