Sinking funds, explained
A sinking fund is money you put aside a little at a time for a bill you know is coming: car insurance, a yearly subscription, holiday gifts. When the bill arrives, the money is already there. Atom Budget keeps one for every bill you have, worked out from your own paychecks, without you having to set them up.
How a sinking fund works
Take the bill, divide it by the paychecks between now and when it is due, and put that much aside from each one. A $1,200 car insurance bill due once a year, paid every two weeks, is $46.15 from each of 26 paychecks. A $240 bill due every three months is about $36.92 from each check.
People who budget with cash keep each fund in its own envelope. People who budget online often open a savings account for each one, or track them in a spreadsheet.
Where it gets hard
One sinking fund is easy. Ten are not. Each bill has its own date and its own number of paychecks before it. Two months a year bring a third paycheck, which changes every share. A bill that goes up in price has to be worked out again. Miss one and the fund is short the week the bill arrives.
How Atom Budget does it
- Every bill is a sinking fund. Monthly, quarterly, yearly: each one takes its share of the paychecks before it.
- One number for all of them. Set aside for bills is the total of every fund right now. Keep your balance above it and every bill gets paid.
- No accounts to open. Nothing moves in your bank. The money stays where it is, and the app tells you how much of it is spoken for.
- Envelopes for spending. For things like groceries and gas that have no due date, there are envelopes that refill on payday.
- Goals for the rest. A vacation or a new laptop has no bill attached. A goal tells you the day you can afford it.
Sinking fund or emergency fund?
A sinking fund is for a cost you can see coming. An emergency fund is for one you cannot. The first has a date and an amount; the second is a cushion. In Atom Budget, bills are the sinking funds, and an emergency fund is a goal with no end date.
Create your free account, or see the same idea for rent.