It’s human nature to desire to have things that are out of our financial reach, but are they really out of our reach? I want to inform you that nothing is out of your reach financially; all you have to do is save so you can get whatever your heart desires.
Since what you desire seems expensive, it’s wise that you create an account specifically dedicated to achieving that goal. Having a separate account will help you avoid the temptation of constantly making unnecessary withdrawals since the account will be aimed at a particular purpose. Such an account is what’s known as a sinking fund. Sinking funds may be aimed towards:
- Getting a new car
- Home renovation
- Medical expenses
Remember, a sinking account is very different from a savings account, so the question remains how do you create a sinking fund? This article will help you understand the 5 steps on creating a sinking fund.
How To Create a Sinking Fund
Creating a sinking fund becomes relatively easy when you follow the following 5 steps
1. Identify Your Needs
like any endeavor, you need an end goal for creating a sinking fund. So, before you begin a sinking fund, it would be wise to draft a list of all you need, especially those you can’t achieve by dipping into your savings account.
Once you have the list, you can decide to target each goal separately or combined. It’s strongly advised that you tackle each goal individually so that you’ll get a sense of achievement once you finally realize it rather than tackling them as one.
2. Determine How Much You Have to Save
Once you have settled on a want, you should perform detailed research on how much achieving that goal is going to cost you so that you can effectively plan on how you’ll have to pay into the sinking fund. To identify how much you are supposed to pay into the fund, you can divide the targeted amount by the number of weeks or months in which you want that goal to be achieved.
3. Find The Right Place to Set Up Your Sinking Fund
Finding the right place for your sinking fund can be challenging since you won’t want it near your savings or regular accounts so as to avoid confusion. So it’s wise to set up an independent sinking account, and since you won’t need the sinking funds, immediately setting up the account where your funds will be accruing interest is the best option. Some of the best sinking account options include:
- Premium bonds
- Instant access savings
- Fixed term savings accounts
- High-interest accounts
4. Set Up the Account
Once you have identified the perfect place for your sinking account, you can set it up and start making payments immediately. Remember to be consistent with the payments if you aim to achieve your goal according to the set period. Also, it’s best to set up one account rather than multiple sinking accounts so that it’s easier to manage.
5. Keep Track of Your Account
It’s imperative to ensure that you are up to date with your payments and that you have a detailed report of your account so that you can know if you’ve achieved your target.
Having a sinking fund has proven to be a very beneficial strategy in the corporate world, so why not try it with your finances?