Here’s How I Save for Long-Term, Unexpected Expenses

Back when I first started this blog, I wrote about sinking funds and how using them helped me finally start making progress towards my financial goals.

If you’re not familiar, sinking funds are categories in your budget dedicated to larger, but infrequent, expenses. They’re the expenses that come up every six months that make you grumble to yourself (if you don’t have a sinking fund, at least).

When I first started trying to save more money, every month there seemed to be something that would keep me from being able to save as much as I thought I’d be able to.

Whether it was spending money on Christmas presents, my car registration, or an annual membership that came due, each month I found myself saying that “next month will be better, this month was just weird because of [insert ‘extra’ thing here].”

It didn’t take long to realize every month was a “weird month” and as a result, I wasn’t getting any closer to my savings goals. 

The Magic of Sinking Funds (read here)

I just recently dipped into my car maintenance sinking fund for a new battery (and a few other overdue maintenance services). This all totaled around $550 and it was so nice to go into the budget and see that money just waiting there in the car maintenance line.

That moment of gratitude made me think it would be worth circling back around to that topic and updating you all with the full list of sinking funds that I’ve added since then – I love sinking funds, so there are a lot.

My wife told me that the first draft of this post was a little…much. So, I’ve put my sinking funds into broad categories to help you understand how I categorize them (and why I actually have this many individual sinking funds in my budget).

Saving for House-Related Expenses

I have at least 6 different sinking funds that help me prepare for home-related costs. Since our house is a duplex, many of these lines are doubled — for example, we have a sinking fund for major repairs to the rental side and a sinking fund for major repairs to our side. Here’s the full list of house-related sinking funds:

  • Major home maintenance (one for the rental side, one for our side)
    I have a home maintenance sinking fund for both our personal home and the rental side of the duplex. We add a little over $100 each month for each side to cover major maintenance on the house in the long term — things like a new roof, new appliances, water heater, AC, etc.

    We replaced both ACs within the past two years, and both water heaters were replaced right before we moved in, so the bulk of this is mostly saving for an eventual new roof and updating appliances on the rental side as needed.
  • Regular home maintenance and repairs (one for the rental side, one for our side)
    We save $110 each month for our personal home and $110 for the rental side of the duplex. We stick with the rule of thumb to save 1% of your purchase price per year. Rather than long-term major costs, this covers regular ongoing maintenance and occasional repairs.

  • Miscellaneous rental costs
    We put aside another $250 each month to cover things like changeover costs (professional cleaning), quarterly pest treatment, possible vacancies, taxes on the income, and gifts for the tenants.

  • Tree trimming
    We have an oak tree in our front yard that requires professional trimming every year or so to keep it from touching our roof. I put $10 each month into this category so that when it’s time, I don’t put it off because the money is already there. It may seem silly to have a sinking fund for something that’s $10 or less, but honestly, it’s how I stay on top of things and keep my financial goals on track. It’s important to know what money will need to be spent in the future, to help you better plan your spending today.

  • Down payment
    This is a new addition! We are looking to move out of Florida in about three years, so we’re starting to save for our next down payment. We’re not going to be selling our house when we move, so this one is going to be a pretty big deal. Since we finally paid off our hurricane windows (!!!) we’ll be moving the payments we were making on that to this new sinking fund, which will total about $800 per month.

Saving for Car-Related Expenses

Transportation expenses can be a major drag. Whether it’s registration fees, repairs, or event replacement costs, this set of budget lines is one that many of us prefer to ignore until we can’t anymore.

My transportation sinking funds are all car-related, but yours might not be! You can have sinking funds for buying things like monthly commuter rail passes, bike maintenance costs, or whatever. Here are the transportation-related sinking funds I currently have:

  • Auto maintenance
    As I mentioned at the start of this post, I keep a sinking fund for maintenance on my car. Each month I drop $35 into this category in YNAB and it accrues over time so it’s ready when I need it! (Which reminds me that I really should schedule an oil change…) Sinking funds might help you have the money saved, but they’re not going to remind you to make the appointment!

  • Car registration
    Each month I save 1/12 of what my car registration was the previous year. This makes sure I’m never surprised by that pesky little bill.

  • Car replacement
    This is a new sinking fund that I just started a few months ago. I figure eventually I’ll need a new (to me) car. I don’t think this will be for a while, and honestly, by the time we hit that point I’m hoping we can be a single-car household. But I throw $35 into this category each month to slowly build up some funds for an eventual replacement anyway. I’ll probably increase the monthly amount by a bit in a year or so.

  • Car insurance
    When my wife was reading over this post, she asked if I had a sinking fund for my car insurance. I don’t because I pay my car insurance on a monthly basis and I wasn’t sure if it was worth it to pay for my whole policy period at once. I looked into it, and I would only save about $4 total, so it isn’t worth it for me to add a sinking fund line here. But for you it might be worth it, so if you have car insurance, make sure to check out your payment plan options!

Saving for Health-Related Expenses

I only actually have one health-related sinking fund — it’s just a general catch-all “health” category.

We have health insurance, but I still put $60 each month into this category so that it’s ready when we need to pay for co-pays, medical bills, prescriptions, over-the-counter medication, sick supplies, workout equipment, and even ergonomic office supplies.

Recently, this sinking fund helped cover an ER copay ($100) and some joint supplements and allergy pills at Costco.

Saving for Miscellaneous Expenses

  • Replacing technology items
    This sinking fund is for replacing the much-used tech items that I know will need to be replaced eventually, like my cellphone, laptop, and camera. I add $50 each month to this budget line, and I’ll stop adding to it once it reaches $2,000. Once I use some of it, I’ll add $50 per month until it reaches $2,000 again.

  • Saving for yearly subscriptions
    This one is pretty self-explanatory. While we have plenty of monthly subscription fees, we also have a bunch of annual subscription fees, too. This includes things like annual credit card fees, our Prime membership, our Costco membership, and more. And yes, there is a sinking fund for each one of these individually!

  • The baby fund
    This has also been a recent addition. While there are no plans for babies anytime soon, I know that over the next couple of years, it will start to be part of the conversation. I also know that as a gay couple, it’s going to cost us some (ahem: a lot of) money to get there. At the moment, there is no deadline on this — so I try to put $50 each month towards it, but I don’t always make it a priority.

  • Peace of mind
    Peace of mind is what I call my “emergency fund.” While a lot of places will say you need 3-6 months of living expenses for a true emergency fund, I only keep mine at $2500. This is because I have so many sinking funds that cover a lot of traditional “emergencies” (auto maintenance, home repairs, health, etc.). So, I rarely have to pull from it.

    In fact, I used this sinking fund for the first time this year when I bought last-minute plane tickets for a funeral. While building it up, I put about $200 each month into the category until it hit $2,500.

Putting the “Fun” in “Sinking Funds”

Sinking funds are great for those big expenses that might feel a little overwhelming, but they’re also great for more exciting things, too! I’ve written before about how I prioritize fun and relaxation in my budget, and this shows up in the many fun-related sinking funds that I have. Here’s the full list:

  • Saving for my friend’s wedding
    I was the maid of honor at my best friend’s wedding, so this was a temporary sinking fund just for this year to help me save for the related expenses. I decided to save $175 each month for this by taking my estimated expenses (flights for the wedding, bachelorette weekend, suit, gifts, etc.) and dividing it by how many months I had until the wedding.  

  • Christmas gifts
    I love buying Christmas presents for my friends and family, so I set aside $50 each month throughout the year so that I know I can shop for their gifts without stressing out. To figure out how much to save each month, I set a budget for what I wanted to spend on each person, added it up, put a little on top for shipping, and then divided it by 12. And yes, this budget line is separate from other, non-Christmas gifts.

  • Vacation
    Pretty self-explanatory! This is where I save for traveling and vacation. How much I put in this category each month depends on what trips we have planned, what else is going on that year, and what my spending priorities are at the time. This has ranged from $120 per month to $300 per month, one of my highest-allocated sinking funds.

Not including the down payment sinking fund, we have over $1,000 each month that gets categorized into various sinking funds. That money is earmarked to be spent at a later date (as an important side note, a couple hundred of this is for the rental side of the duplex and comes out of the monthly rent).

That may seem like a lot, and it is. But that’s also why zero-sum budgeting and embracing your true expenses – as YNAB likes to say – is so important to actually get a handle on your budget. What would happen if I was ignoring that $1,000 a month of expenses that would eventually come due? I’d be in for a rude awakening.

Even though I’m not actually spending that money each month, those bills will come due at some point. Allocating money towards them now, bit by bit, helps them feel a lot more manageable, helps me feel a lot more in control, and ensures I’ll be able to afford them when they do come.

Without planning for these larger, future expenses, I’d think that I had more disposable income than I actually do, and I’d probably spend more of it than I should.

This would make it hard to get ahead, even though I make pretty decent money. By splitting up my infrequent-but-big expenses, it all feels a lot more manageable and my sense of how much money I have for extras is much more realistic in the long run.

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