August 19, 2010

The Sinking Funds, And Why They're Awesome

No, we're not getting a new kitchen sink any time soon.

We got our car registration renewal yesterday. It's a fairly large amount of money. Ok, actually if I can just rant a little bit.... $237 for a STICKER?!? Really California? Really? On the bright side, it is actually down from last year... *rolls eyes*

Anyways. Yes, large chunk of money. But we can pay for it no problem! Without having to forgo food or diapers or pray for a bonus.

Back in my budget post, I talked about how we were adding up our yearly expenses and dividing that number by 12 to get a monthly amount to set aside. Because we've stuck to our budget and done that, we now have enough to cover the car registration (and the smog check. We just bought the car a year ago and they want a stupid smog check...)

I later learned that what we're doing was adding to what are called "sinking funds", defined as such:
A fund accumulated to pay off a corporate or public debt.

Obviously we don't have a corporate or public debt, but the idea is the same. You save up the money to pay it off in a big chunk later.

I created a spreadsheet using the instructions from Family Balance Sheet, and added and subtracted categories to fit our needs. The above is our sink funds. We are able to do it all from one savings account (with the exception of the E fund. That is in a separate account that earns higher interest.) By using the spreadsheet I can see how much money we have in each "fund", compare it to our savings account balance, and any extra amount goes onto the "KS Savings" line. This way I know what we can and can't touch for each expenses.

It's worked out beautifully. In fact, the sinking fund is what made it possible for Ben to build the shed. I love the spreadsheet as well. At any time I can pull it up and see our balances on anything we have. Our debts get a strike through when we've paid them off, so we can see our progress. It's great. I highly suggest making one for yourself.


Farm Girl said...

Pretty smart. You always amaze me with how smart you are with money.
This was really interesting to me.

William said...

Spreadsheets really DO improve lives. I'll definitely steal this idea when I'm out on my own!

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