It’s never fun to think about the worst-case scenario, especially when working hard to keep your financial life in order. Having an emergency fund is a great way to have a safety net should something unexpected happen. However, what happens if your car needs expensive repairs and you can’t put that money away right now? Or maybe you don’t have enough cash on hand for an upcoming bill or other unanticipated expense. These are all situations that call for sinking funds. A sinking fund is a special account with money set aside expressly for future costs or obligations. They are called contingency funds, disaster funds, or liability accounts. One of the great things about sinking funds is that they give you peace of mind should something adverse happen.

 

Difference Between A Sinking Fund & Emergency Fund

You might think that they are both the same. However, an emergency fund is a savings account that can be used for any type of emergency or as you see fit. However, sinking funds are helpful as you assign them to specific uses only. Typically these will be costs you will regularly payout for over time, Be it car repairs, medical treatment, birthdays, etc. This way, you don’t have to worry about depleting emergency funds for something else. It also frees up your emergency fund for a real emergency and something completely unexpected.

 

Medical Expenses

One of the first sinking funds you should have is a health fund. Medical expenses are always unexpected, so it’s essential to have an emergency fund to handle them if needed. The average cost of an emergency room visit is $1200, and a surgical procedure can run as high as $100,000, so you never know what could happen. Even with medical insurance, you could still be left with out-of-pocket expenses. If you don’t have a fund set aside, you could face a difficult decision: do you pay for the emergency treatment or the medical bills? If you don’t have a health fund, you could ruin your credit and possibly end up with a collections agency pursuing you for payment. Medical expenses can also be used to cover an unexpected death in the family and help towards funeral costs, caskets and headstones from Memorials.com, for example.

 

Vehicle Repairs

Vehicle repairs are another unfortunate expense that is always unplanned and unexpected. When you need to put money toward vehicle repairs, it’s best to do so immediately. Waiting could cost you thousands of dollars more in the long run. You won’t have to pay for the work if you put off vehicle repairs and something breaks that is covered under the warranty. However, if you wait too long and something outside the warranty breaks, you could face a hefty bill. This is where a good vehicle sinking fund can be best utilized.

 

Appliance Breakdowns

You might not think about it, but appliances always break down. You could have a washing machine go out, a refrigerator dies, a stove stop working, or an indoor water fountain stop flowing. When one of these appliances breaks down, it can be a minor inconvenience, or it could cause a significant disruption in your life. If you have a sinking fund for appliance breakdowns, you can immediately put the money toward the repair or replacement. If you don’t have a sinking fund set up for appliances, you could struggle to find money to replace something you rely on around the house. You don’t want to put off appliance repairs because they can lead to more significant issues if they aren’t tended to.

 

Christmas Sinking Fund

Christmas is a fun time of year but can also cost a lot of money. Gifts, decorations, and food are just a few examples of how Christmas could cost you a lot of money. It’s best to start saving as early as possible if you want to buy gifts for loved ones at Christmas. To avoid the rush and the debt, have a sinking fund specifically for Christmas gifts. If you have a sinking fund specifically for Christmas, you can put money toward gifts throughout the year. If you don’t have a sinking fund for Christmas, unexpected expenses could force you to put off buying gifts until the last minute. You might even use credit to pay for the gifts, which could hurt your credit score.

 

Dental Costs

Dental work is a costly expense that you hope to avoid. Unfortunately, dental costs are widespread. You can prevent out-of-pocket dental expenses by having a dental insurance plan. However, some insurance plans only cover specific procedures or have a strict yearly dollar amount. Dental work is a typical unplanned expense. You might have a tooth or two drilled or a filling replaced. Or your child could need braces or a root canal. If you have a sinking fund for dental expenses, you can put the money toward the cost. A sinking dental fund is significant if you don’t have dental insurance. You never know when dental work could become necessary.

 

Home Maintenance

Home maintenance doesn’t happen when you want it to. You could need to replace your roof, do plumbing work, or fix flooring. You can use those funds to pay for the repairs if you have an emergency fund. If you don’t have an emergency fund, you could use a home maintenance sinking fund to pay for the necessary repairs. Home maintenance is unavoidable. You might be able to avoid most repairs for a while, but eventually, you’ll need to do something around the house. Having a home maintenance sinking fund gives you peace of mind. You know that if something breaks, you have the cash necessary to get it fixed.

As well as maintenance, you’ll need to think about the various home costs that you are always going to have. One of the major ones is energy bills, and these need to be brought as low as possible if you want to have funds spare for home maintenance on the whole. You might want to look into some CleanChoice Energy reviews to see how you can keep your energy bills down, and you might want to think about some of the things you can do keep your usage low as well.

 

Bottom Line

Sinking funds are essential for your financial well-being. You never know when costly repairs or medical expenses might be necessary. Having a sinking fund set up for these unplanned expenses is a great way to ensure that you have the cash required to finish the work. It’s also a great way to maintain your credit score.