Fortunately, Tucker offers a solution that doesn\u2019t require you to rack up expensive debt or<\/em> forego the fun altogether: Start a sinking fund.<\/p>\n\n\n\n \u201cI\u2019m a huge fan of sinking funds,\u201d says Tucker, who cops to having 13 sinking funds in her arsenal (see \u201cUses for a sinking fund,\u201d below). In fact, Tucker has been utilizing this smart strategy for about seven years\u2014right about the time she paid off all her debt and caught the budgeting bug.<\/p>\n\n\n\n So what is a sinking fund, and how can it save your holiday fun without sacrificing your long-term financial goals? We asked Tucker to share the ins-and-outs of her favorite holiday\u2014and year-round\u2014savings strategy.<\/p>\n\n\n\n A sinking fund is a strategy where you\u2019re putting money away for future planned expenses. The idea comes from a corporate term<\/a> used by companies that set aside money to pay off a debt or bond. Lucky for the rest of us, personal finance experts like Dave Ramsey<\/a> recognized it as a savvy budgeting strategy for individuals and families, as well.<\/p>\n\n\n\n \u201cA sinking fund is basically taking a large amount of money that you’re going to spend maybe once or twice a year, then breaking that number down into smaller chunks that you can save for monthly,\u201d says Tucker. \u201cFor example, if you know you want to save a certain amount for holiday expenses, you would divide that total cost by the number of months you have remaining, and then save each month to meet that goal.\u201d<\/p>\n\n\n\n In addition to breaking up a big expense, another benefit of a sinking fund is that you can keep the money in a high-yield savings account<\/a>, where it earns interest until you need to use it. <\/p>\n\n\n\n At first glance, a sinking fund sounds a bit like an emergency fund<\/a>, which also fits the description of \u2018money set aside for future expenses.\u2019 The difference is that sinking funds are for planned expenses<\/em>, whereas emergency funds are for unplanned expenses<\/em>. <\/p>\n\n\n\n For example, personal finance experts recommend having three months of expenses saved in an emergency fund. For sinking funds, however, the amounts will vary based on how much you expect to spend on each category.<\/p>\n\n\n\n \u201cA sinking fund can be so many different things that you want it to be,\u201d Tucker explains. In fact, she uses sinking funds to cover 13 planned expenses throughout the year, including categories like holiday spending, travel, car and home maintenance, and birthdays.<\/p>\n\n\n\n If you\u2019re just getting started with sinking funds, Tucker recommends holiday savings as a great way to dip your toes. \u201cWrite down all the holidays you celebrate throughout the year, including birthdays, then decide how much to budget toward each one,\u201d she suggests. Don\u2019t forget to include food for big family meals, decorations, and, of course, gifts.<\/p>\n\n\n\n So what if you want to spend $1,000 on holiday gifts and meals, but you only have a month to get the money together? <\/p>\n\n\n\n \u201cIf it\u2019s late in the game, don\u2019t panic,\u201d advises Tucker. \u201cStart by evaluating what you’re spending money on during the holidays, and decide whether it’s really necessary or if it\u2019s more consumer-driven.\u201d If you\u2019re spending a lot on material things, she suggests an alternative like hosting a family potluck (keep the memories, lose the holiday spending hangover).<\/p>\n\n\n\n Of course, cutting back on presents can be a tough pill to swallow, but if you\u2019re serious about reaching your financial goals, it\u2019s also a necessary one. \u201cIf you\u2019re just starting your budgeting journey, you\u2019ve got to learn that you\u2019re going to have to make sacrifices\u2014and material stuff will be at the top of that list.\u201d<\/p>\n\n\n\n Tucker\u2019s biggest piece of advice? Start a sinking fund anyway\u2014right now! The sooner you start, the more prepared you\u2019ll be for next year\u2019s holidays (not to mention other big expenses).<\/p>\n\n\n\n There are two ways to manage your sinking funds: cash or digital. <\/p>\n\n\n\n With a cash sinking fund, otherwise known as the envelope method<\/a>, you\u2019d make an envelope for each expense on your list, then put the cold hard cash monthly into each envelope every month. <\/p>\n\n\n\n For security and simplicity purposes, Tucker prefers a digital version. Instead of using envelopes and cash, set up a separate \u201csinking fund\u201d savings account, calculate how much you need to save each month to meet your goals, then set up an automatic monthly transfer of that amount. When you need the funds, simply transfer them back to your regular checking account.<\/p>\n\n\n\n There\u2019s some debate about whether to set up a separate savings account for each sinking fund. Tucker prefers to have just one fund and keeps track of the separate categories on a spreadsheet (see \u201cHow to set up a digital sinking fund,\u201d below). Ultimately, you should choose the method that will be easiest for you to manage.<\/p>\n\n\n\n Step 1: Create an annual budget<\/a>, listing all the costs outside of your monthly expenses that tend to happen at least yearly.<\/p>\n\n\n\n Step 2: Decide how much you want or need to spend on each category. (Tucker\u2019s tip: Look for places to save money and slash expenditures that aren\u2019t in alignment with your values or long-term financial goals.)<\/em><\/p>\n\n\n\n Step 3: Set up a spreadsheet to manage each category and the savings goal and target date for each. Here\u2019s what Tucker\u2019s spreadsheet looks like:<\/p>\n\n\n\n Step 4: Do the math to figure out how much you need to save each month in order to hit all your targets on time. For example, let\u2019s say it\u2019s January 1st and you have the following goals this year. In this scenario, you\u2019d need to save $153.12 each month in order to hit each savings goal by the target dates:<\/p>\n\n\n\nWhat is a sinking fund?<\/h2>\n\n\n\n
Sinking fund vs. emergency fund<\/h2>\n\n\n\n
Uses for a sinking fund<\/h2>\n\n\n\n
Starting a Christmas sinking fund\u2014 in December<\/h2>\n\n\n\n
Cash vs. digital sinking fund<\/h2>\n\n\n\n
How to set up a digital sinking fund<\/h2>\n\n\n\n
![\"\"\/](\"https:\/\/www.quicken.com\/blog\/wp-content\/uploads\/2022\/08\/Sinkingfundspreadsheet_0.png\")
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Source: <\/em>An Organized Life<\/em><\/a><\/span><\/p>\n\n\n\n